nep-mfd New Economics Papers
on Microfinance
Issue of 2012‒10‒27
two papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Agricultural Decisions after Relaxing Credit and Risk Constraints By Dean Karlan; Robert Darko Osei; Isaac Osei-Akoto; Christopher Udry
  2. Vive la Différence: Social Banks and Reciprocity in the Credit Market By Simon Cornée; Ariane Szafarz

  1. By: Dean Karlan; Robert Darko Osei; Isaac Osei-Akoto; Christopher Udry
    Abstract: The investment decisions of small‐scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can reduce investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing in a farmer’s own receipt of insurance payouts, and with the receipt of payouts by others in the farmer’s social network. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered.
    JEL: C93 D24 D92 G22 O12 O13 O16 Q12 Q14
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:18463&r=mfd
  2. By: Simon Cornée; Ariane Szafarz
    Abstract: Social banks are financial intermediaries paying attention to non-economic (i.e. social, ethical, and environmental) criteria. This paper investigates the behavior of social banks in the European credit market. We use a unique hand-collected dataset on 389 business loans granted by a French social bank. Our results show that the social bank charges below-market interest rates for viable social projects. Moreover, regardless of their creditworthiness, motivated borrowers respond to advantageous credit conditions by significantly lowering their probability of default. We interpret this outcome as the first evidence of reciprocity in the credit market.
    Keywords: Social bank; subsidized loan; social enterprise; ethical bank; start-up
    JEL: G21 D63 G24 H25
    Date: 2012–10–15
    URL: http://d.repec.org/n?u=RePEc:sol:wpaper:2013/129733&r=mfd

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