nep-mfd New Economics Papers
on Microfinance
Issue of 2013‒01‒26
four papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Opportunities in microfinance risk management By Janda, Karel; Zetek, Pavel
  2. Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies By Harold P.E. Ngalawa and Nicola Viegi
  3. The impact of health insurance schemes for the informal sector in low- and middle-income countries : a systematic review By Acharya, Arnab; Vellakkal, Sukumar; Taylor Fiona; Masset Edoardo; Satija, Ambika; Burke, Margaret; Ebrahim, Shah
  4. Multiple Lenders, Strategic Default and Debt Covenants By Andrea Attar; Catherine Casamatta; Arnold Chassagnon; Jean Paul Décamps

  1. By: Janda, Karel; Zetek, Pavel
    Abstract: This paper examines the main risk management opportunities and threats, which microfinance institutions (MFIs) are exposed to. Awareness and understanding of these indicators can make the evolution of microfinance more accurate and simultaneously can help to locate the microfinance market in the broader picture of economic development. Growing competition improves the current situation for borrowers, because it leads to acceptable interest rates policy and expansion of existing microfinance services. At the same time, intense competition may represent threats, if the rules of regulation and supervision are not properly set. In this regard, we believe that the future of microfinance will significantly depend on the linkage between MFIs and financial markets, especially in the light of access to an alternative source of funding, the possibility of securitization and other complementary services.
    Keywords: Microfinance; Microcredit; MFIs; Financial Crises
    JEL: G01 G21
    Date: 2013–01–23
  2. By: Harold P.E. Ngalawa and Nicola Viegi
    Abstract: The primary objective of this paper is to investigate the interaction of formal and informal financial markets and their impact on economic activity in quasi-emerging market economies. Using a four-sector dynamic stochastic general equilibrium model with asymmetric information in the formal financial sector, we come up with three fundamental findings. First, we demonstrate that formal and informal financial sector loans are complementary in the aggregate, suggesting that an increase in the use of formal financial sector credit creates additional productive capacity that requires more informal financial sector credit to maintain equilibrium. Second, it is shown that interest rates in the formal and informal financial sectors do not always change together in the same direction. We demonstrate that in some instances, interest rates in the two sectors change in diametrically opposed directions with the implication that the informal financial sector may frustrate monetary policy, the extent of which depends on the size of the informal financial sector. Thus, the larger the size of the informal financial sector the lower the likely impact of monetary policy on economic activity. Third, the model shows that the risk factor (probability of success) for both high and low risk borrowers plays an important role in determining the magnitude by which macroeconomic indicators respond to shocks.
    Keywords: Informal financial sector, formal financial sector, monetary policy, general equilibrium
    JEL: E44 E47 E52 E58
    Date: 2013
  3. By: Acharya, Arnab; Vellakkal, Sukumar; Taylor Fiona; Masset Edoardo; Satija, Ambika; Burke, Margaret; Ebrahim, Shah
    Abstract: This paper summarizes the literature on the impact of state subsidized or social health insurance schemes that have been offered, mostly on a voluntary basis, to the informal sector in low- and middle-income countries. A substantial number of papers provide estimations of average treatment on the treated effect for insured persons. The authors summarize papers that correct for the problem of self-selection into insurance and papers that estimate the average intention to treat effect. Summarizing the literature was difficult because of the lack of (1) uniformity in the use of meaningful definitions of outcomes that indicate welfare improvements and (2) clarity in the consideration of selection issues. They find the uptake of insurance schemes, in many cases, to be less than expected. In general, we find no strong evidence of an impact on utilization, protection from financial risk, and health status. However, a few insurance schemes afford significant protection from high levels of out-of-pocket expenditures. In these cases, however, the impact on the poor is weaker. More information is needed to understand the reasons for low enrollment and to explain the limited impact of health insurance among the insured.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Health Economics&Finance,Health Law,Insurance&Risk Mitigation
    Date: 2013–01–01
  4. By: Andrea Attar (Department of Economics, Law and Institutions, University of Rome "Tor Vergata"); Catherine Casamatta (Toulouse School of Economics); Arnold Chassagnon (Université de Tours and Paris School of Economics); Jean Paul Décamps (Toulouse School of Economics)
    Abstract: This paper investigates how the use of covenants in financial contracts affects competition in capital markets subject to moral hazard. Financial contracts offered by investors are non-exclusive, i.e. entrepreneurs can trade with several investors at a time. To restrict entrepreneurs’ ability to trade with competitors, investors can include in their contracts ex post punishments contingent on the firm’s outside investment or indebtedness, which we interpret as covenants. When covenants are precluded, the equilibrium outcome is always efficient, and unique when the moral hazard problem is severe. Then, the aggregate of lenders earn monopoly profits. If covenants can be included in financial contracts, every incentive compatible individually rational allocation can be supported at equilibrium: market equilibria are indeterminate and Pareto-ranked. Contrary to common wisdom, covenants alone do not enhance competition. We then investigate the impact of two institutional mechanisms (information sharing systems and loan subsidies) to mitigate entrepreneurs’ incentive to trade excessively. Both mechanisms restore efficiency, but only loan subsidies can sustain the competitive outcome as the unique equilibrium allocation.
    Keywords: Non-Exclusivity, Credit Rationing, Debt Covenants.
    JEL: D43 D82 G33
    Date: 2013–01–18

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