New Economics Papers
on Microfinance
Issue of 2013‒03‒09
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Market Structure and Borrower Welfare in Micro Finance By Ghatak, Maitreesh; de Quidt, Jonathan; Fetzer, Thiemo
  2. Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises By Göbel, Kristin; Grimm, Michael; Lay, Jann
  3. Identification for Development:The Biometrics Revolution By Alan Gelb and Julia Clark

  1. By: Ghatak, Maitreesh (London School of Economics); de Quidt, Jonathan (London School of Economics); Fetzer, Thiemo (London School of Economics)
    Abstract: Motivated by recent controversies surrounding the role of commercial lenders in micro nance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-prfi t 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-pro t lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.
    Keywords: micronance; market power; for-profit; social capital
    Date: 2013
  2. By: Göbel, Kristin (University of Hamburg); Grimm, Michael (University of Passau, Erasmus University Rotterdam, IZA, DIW); Lay, Jann (University of Göttingen, GIGA German Institute of Global and Area Studies, Hamburg)
    Abstract: We investigate the returns to capital and capital accumulation using panel data of Peruvian micro enterprises (MEs). Marginal returns to capital are found to be very high at low levels of capital, but rapidly decreasing at higher levels. The dynamic analyses of capital accumulation in MEs suggest that credit constraints explain a major part of the variation in firm growth. We find a very large positive effect of household non-business wealth on capital stocks of MEs. We also show a sizable effect of risk on accumulation and pronounced interactions between wealth and risk. The presented evidence is consistent with poorly endowed entrepreneurs who operate in imperfect capital markets and a very risky environment.
    Keywords: Micro and small enterprises, credit constraints, risk, risk aversion, firm growth, Peru
    JEL: D13 D61 O12
    Date: 2013–01
  3. By: Alan Gelb and Julia Clark
    Abstract: Formal identification is a prerequisite for development in the modern world. The inability to authenticate oneself when interacting with the state—or with private entities such as banks—inhibits access to basic rights and services, including education, formal employment, financial services, voting, social transfers, and more. Unfortunately, underdocumentation is pervasive in the developing world. Civil registration systems are often absent or cover only a fraction of the population. In contrast, people in rich countries are almost all well identified from birth. This “identity gap” is increasingly recognized as not only a symptom of underdevelopment but as a factor that makes development more difficult and less inclusive. Many programs now aim to provide individuals in poor countries with more robust official identity, often in the context of the delivery of particular services. Many of these programs use digital biometric identification technology that distinguish physical or behavioral features, such as fingerprints or iris scans, to help “leapfrog” traditional paper-based identity systems. The technology cannot do everything, but recent advances enable it to be used far more accurately than previously, to provide identification (who are you?) and authentication (are you who you claim to be?). Technology costs are falling rapidly, and it is now possible to ensure unique identity in populations of at least several hundred million with little error. This paper surveys 160 cases where biometric identification has been used for economic, political, and social purposes in developing countries. About half of these cases have been supported by donors. Recognizing the need for more rigorous assessments and more open data on performance, the paper draws some conclusions about identification and development and the use of biometric technology. Some cases suggest large returns to its use, with potential gains in inclusion, efficiency, and governance. In others, costly technology has been ineffective or, combined with the formalization of identity, has increased the risk of exclusion. One primary conclusion is that identification should be considered as a component of development policy, rather than being seen as just a cost on a program-by-program basis. Within such a strategic framework, countries and donors can work to close the identification gap, and in the process improve both inclusion and the efficiency of many programs
    Keywords: biometric identification, civil registry, voter registration, G2P, financial inclusion, transfers.
    JEL: H80 J10 O33 O38
    Date: 2013–01

This issue is ©2013 by Aastha Pudasainee and Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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