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on Microfinance |
| By: | de Quidt, Jonathan; Fetzer, Thiemo; Ghatak, Maitreesh |
| Abstract: | Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits. |
| Keywords: | for-profit; market power; microfinance; social capital |
| JEL: | D4 D82 G21 L4 O12 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9165&r=mfd |
| By: | de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick) |
| Abstract: | We conduct a randomized experiment in Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. In contrast to existing business training evaluations which are restricted to microfinance clients, we consider two more representative groups: a random sample of women operating subsistence enterprises, and a random sample of women who are out of the labor force but interested in starting a business. Both samples are randomized into three groups: a control group, a group invited to attend training, and a group invited to receive training and who receive a cash grant conditional on completing training. We track impacts over four rounds of follow-up surveys taken over two years and find that the short- and medium-term impacts differ. For women already in business, we find that although training alone leads to some changes in business practices, it has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up the process of opening a business, and changes the selection of who operates a business by making the entrants less analytically skilled, but leads to no increase in net business ownership by our final survey round. Receiving a grant results in poorer women opening businesses, but again does not increase net business ownership. Training appears to have increased the profitability and business practices of the businesses started up, suggesting it may be more effective for new owners than for enhancing existing businesses. |
| Keywords: | business training, female self-employment, randomized experiment, business start-up, trajectory of treatment effects |
| JEL: | O12 J16 L26 M53 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6896&r=mfd |
| By: | Britta Augsburg (Institute for Fiscal Studies); Ralph De Haas; Heike Harmgart (Institute for Fiscal Studies); Costas Meghir (Institute for Fiscal Studies and Yale University) |
| Abstract: | We use an RCT to analyse the impact of microcredit on poverty reduction in Bosnia. The study population are loan applicants that would normally have just been rejected based on regular screening. We find that access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education ran down their savings, presumably to complement the loan and to achieve the minimum amount necessary to expand their business. In less-educated households, however, consumption went down. A key new result is that there was a substantial increase in the labor supply of young adults (16-19 year olds). This was accompanied by a reduction in school attendance. |
| Keywords: | Microfinance, liquidity constraints, human capital, randomized controlled trial |
| JEL: | G21 D21 I32 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:12/15&r=mfd |
| By: | McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick) |
| Abstract: | Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies. |
| Keywords: | business training, consulting, randomized experiments, firm productivity |
| JEL: | O12 J16 L26 M53 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6895&r=mfd |
| By: | Felipe Kast; Stephan Meier; Dina Pomeranz |
| Abstract: | We test the effectiveness of self-help peer groups as a commitment device for precautionary savings, through two randomized field experiments among 2,687 microentrepreneurs in Chile. The first experiment finds that self-help peer groups are a powerful tool to increase savings (the number of deposits grows 3.5-fold and the average savings balance almost doubles). Conversely, a substantially higher interest rate has no effect on most participants. A second experiment tests an alternative delivery mechanism and shows that effects of a similar size can be achieved by holding people accountable through feedback text messages, without any meetings or peer pressure. |
| JEL: | D00 D03 D11 D12 D14 E2 E20 E21 O2 O20 O54 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18417&r=mfd |
| By: | Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Stefano Castriota (Faculty of Economics, University of Rome "Tor Vergata"); Pierluigi Conzo (University of Naples "Federico II" & CSEF) |
| Abstract: | The poor in developing countries are the most exposed to natural catastrophes and microfinance organizations may potentially ease their economic recovery. Yet, no evidence on MFIs strategies after natural disasters exists. We aim to fill this gap with a database which merges bank records of loans, issued before and after the 2004 Tsunami by a Sri Lankan MFI recapitalized by Western donors, with detailed survey data on the corresponding borrowers. Evidence of effective post-calamity intervention is supported since the defaults in the post-Tsunami years (2004-2006) do not imply smaller loans in the period following the recovery (2007-2011) while Tsunami damages increase their size. Furthermore, a cross-subsidization mechanism is in place: clients with a long successful credit history (and also those not damaged by the calamity) pay higher interest rates. All these features helped damaged people to recover and repay both new and previous loans. However, we also document an abnormal and significant increase in default rates of non victims suggesting the existence of contagion and/or strategic default problems. For this reason we suggest reconversion of donor aid into financial support to compulsory microinsurance schemes for borrowers. |
| Keywords: | Tsunami, disaster recovery, microfinance, strategic default, contagion, microinsurance |
| JEL: | G21 G32 G33 |
| Date: | 2012–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:254&r=mfd |
| By: | Parmar, Divya; Souares, Aurélia; de Allegri, Manuela; Savadogo, Germain; Sauerborn, Rainer |
| Abstract: | Background Although most community-based health insurance (CBHI) schemes are voluntary, problem of adverse selection is hardly studied. Evidence on the impact of targeted subsidies on adverse selection is completely missing. This paper investigates adverse selection in a CBHI scheme in Burkina Faso. First, we studied the change in adverse selection over a period of 4 years. Second, we studied the effect of targeted subsidies on adverse selection. Methods The study area, covering 41 villages and 1 town, was divided into 33 clusters and CBHI was randomly offered to these clusters during 2004–06. In 2007, premium subsidies were offered to the poor households. The data was collected by a household panel survey 2004–2007 from randomly selected households in these 33 clusters (n = 6795). We applied fixed effect models. Results We found weak evidence of adverse selection before the implementation of subsidies. Adverse selection significantly increased the next year and targeted subsidies largely explained this increase. Conclusions Adverse selection is an important concern for any voluntary health insurance scheme. Targeted subsidies are often used as a tool to pursue the vision of universal coverage. At the same time targeted subsidies are also associated with increased adverse selection as found in this study. Therefore, it’s essential that targeted subsidies for poor (or other high-risk groups) must be accompanied with a sound plan to bridge the financial gap due to adverse selection so that these schemes can continue to serve these populations. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:lselon:http://eprints.lse.ac.uk/46664/&r=mfd |
| By: | Lee, Samuel (Stern School of Business); Persson, Petra (Research Institute of Industrial Economics (IFN)) |
| Abstract: | The constraint on informal finance is commonly taken to be high costs and limited supply. But the majority of informal investors – family and friends – is often willing to supply funds at negative returns, and yet many borrowers tap family and friends only as a last resort. We explain this paradox with a theory based on altruistic ties between the entrepreneur and his family and friends, and propose an alternative explanation of the limits of informal finance: Altruistic ties reduce agency problems in financing. But such ties also increase the entrepreneur’s aversion to failure. This makes financing from family and friends unattractive, and undermines the entrepreneur’s willingness to take risks. Altruistic ties thus constrain growth even though they relax financing constraints. We relate this insight to the limited success of group-based microfinance in generating entrepreneurial growth. Our theory underscores the value of impersonal transactions, and implies that even counterparties with social ties benefit from formal contracts and third-party intermediation. This sheds light on social-formal financial institutions, such as community funds, crowd funding, and social lending intermediaries. |
| Keywords: | Informal finance; Family loans; Social ties; Altruism; Peer-to-peer lending; Small business; |
| JEL: | D19 D64 G21 G32 O16 O17 |
| Date: | 2012–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0933&r=mfd |