nep-mfd New Economics Papers
on Microfinance
Issue of 2013‒03‒02
two papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. REPAYMENT AND EXCLUSION IN A MICROFINANCE EXPERIMENT By Jean-Marie Baland; Lata Gangadharan; Pushkar Maitra; Rohini Somanathan
  2. Unsubsidized Microfinance Institutions By Bert D'Espallier; Marek Hudon; Ariane Szafarz

  1. By: Jean-Marie Baland (University of Namur BREAD and CEPR); Lata Gangadharan (Monash University); Pushkar Maitra (Monash University); Rohini Somanathan (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: Microfinance groups often engage in a variety of collective activities not directly related to credit. Groups can sanction members who default on their loans by excluding them from these activities. Our experiment is designed to explore the effectiveness of such sanctions in improving repayment incentives. Groups of 10 members are provided with joint-liability loans for a specific investment project. If groups repay their loans, contributing members have the option of excluding other members and those that remain play a public goods game. By varying loan sizes across groups and allowing for heterogeneous gains from the public good within groups, we identify the role of incentives in repayment decisions. In line with theoretical predictions, groups with the largest repayment burdens have the highest default rates and within groups, individual decisions to contribute to loan repayment depend on gains from the public good game.
    Keywords: Microfinance, Joint Liability, Social Exclusion, Public Good, Heterogeneous Pro- ductivity, Laboratory Experiments.
    JEL: C9 G21 O12
    Date: 2013–02
  2. By: Bert D'Espallier; Marek Hudon; Ariane Szafarz
    Abstract: This paper starts from the observation that 23% of the world’s microfinance institutions (MFIs) manage without subsidies. We examine how unsubsidized institutions cope with their social mission. Overall, the lack of subsidies worsens social performances. However, our results show that strategies to achieve financial self-sufficiency differ substantially across regions. African and Asian MFIs compensate for non-subsidization by charging higher interest rates. In Eastern Europe and Central Asia, unsubsidized MFIs find it more suitable to target less poor clients. Unsubsidized Latin American MFIs tend to reduce their share of female borrowers.
    Keywords: microfinance; subsidies; mission drift; poverty reduction; average loan size; interest rates
    JEL: F35 G21 G28 O54 O57
    Date: 2013–02–14

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