New Economics Papers
on Microfinance
Issue of 2013‒03‒16
eight papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. A Social Approach to Microfinance Credit Scoring By Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto; Nydia M. Reyes
  2. Does Micro Finance Institution Improve Welfare? A Double Difference Analysis of Indonesian Community-level Data By Heriyaldi; Arief Anshory Yusuf
  3. Group Lending with Heterogeneous Types By Li Gan; Manuel A. Hernandez; Yanyan Liu
  4. Rules of Microcredit Regulatory Authority in Bangladesh: A Synopsis By Badruddoza, S.
  5. Determinants of the Establishment of Islamic Micro Finance Institutions: The Case of Baitul Maal wa Tamwil (BMT) in Indonesia By Alfiah Hasanah; Arief Anshory Yusuf
  6. Does Forced Solidarity Hamper Investment in Small and Micro Enterprises? By Grimm, Michael; Hartwig, Renate; Lay, Jann
  7. Micro-Entrepreneurship Training and Asset Transfers: Short Term Impacts on the Poor By Claudia Martínez A.; Esteban Puentes; Jaime Ruiz-Tagle
  8. SME registration evidence from a randomized controlled trial in Bangladesh By De Giorgi, Giacomo; Rahman, Aminur

  1. By: Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto; Nydia M. Reyes
    Abstract: Microfinance Institutions (MFIs) provide loans to low income individuals. The credit scoring systems of MFIs, if they exist, are strictly financial. Although many MFIs consider the social impact of their loans, they do not incorporate formal systems to estimate this social impact. This paper proposes that their creditworthiness evaluations should be coherent with their social mission and should, accordingly, estimate the social impact of microcredit. Thus, a decision support system to facilitate microcredit granting is proposed, and multicriteria evaluation is used to translate MFI’s social mission into numbers. The assessment of social impact is performed by calculating the Social Net Present Value (SNPV). The system captures credit officers’ experience and addresses incomplete and intangible information. The model has been tested in a microfinance institution. The paper illustrates an example of its use in practice.
    Keywords: microfinance; credit scoring; decision support system; social impact; multicriteria; social finance
    Date: 2013–02–18
  2. By: Heriyaldi (Department of Economics, Padjadjaran University); Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: Using a longitudinal community-level data of Indonesia, we test whether a presence of 5 different microfinance institutions (MFI) within a community has contributed to the improvement in the welfare (as measured by per capita expenditure) of the community's population. Applying the Difference-in-Difference analysis to this data, we find that direct access to MFI through its presence in the community has an impact only in rural areas. We find no evidences that direct access to MFI in urban area improves household welfare. Moreover, among the 5 different MFI in rural areas,we find evidence of an impact only for two micro finance institutions namely Bank Rakyat Indonesia (BRI) and Bank Perkreditan Rakyat (BPR). This finding suggests that BRI, as the largest and most successful state-owned micro finance institution in Indonesia, should maintain its orientation in rural banking services.
    Keywords: Micro Finance Institutions, Difference-in-Difference, IFLS, Indonesia
    JEL: G21
    Date: 2013–03
  3. By: Li Gan; Manuel A. Hernandez; Yanyan Liu
    Abstract: Group lending has been widely adopted in the past thirty years by many microfinance institutions as a means to mitigate information asymmetries when delivering credit to the poor. This paper proposes an empirical method to address the potential omitted variable problem resulting from unobserved group types when modeling the repayment behavior of group members. We estimate the model using a rich dataset from a group lending program in India. The estimation results support our model specification and show the advantages of relying on a type-varying method when analyzing the probability of default of group members.
    JEL: C35 O16
    Date: 2013–02
  4. By: Badruddoza, S.
    Abstract: The note summarizes the rules and regulations set by Microcredit Regulatory Authority (MRA) in Bangladesh. It also provides the reader with idea of how these rules might take effect.
    Keywords: regulation, micro credit, micro finance, Bangladesh, MRA
    JEL: G23 G28 K23
    Date: 2013–02–28
  5. By: Alfiah Hasanah (Department of Economics, Padjadjaran University); Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: As a country with the largest number of muslim population in the world, Islamic micro finance institutions have a large potential to playa greater role in the country's aspiration to poverty reduction. However, the determinants of theestablishment of Islamic Micro Finance Institutions, particularly in Indonesia, has not been extensively studied. This paper attempts to explore the determinants of the establishment ofBaitul Maal wa Tamwil (BMT), one of the main Islamic microfinance institutions in Indonesia. A probit model of BMT establishment is estimated using an Indonesian village-level data. The result suggests that the extent of economic activities particularly in agriculture sector, and high accessibility to market are strong determinants of BMT establishmentin Indonesian villages. It is also found that villages that experienced recent calamities particularly drought are more likely to have BMT established. This may indicate the role of BMT as a provider of financial service in the midst of hardship. Religion is among the strongest determinant of BMT establishment. Villages with Islam as the dominant religion is more likely of having BMT established. However, this effect is strong only in rural areas.In urban areas, this effect is weak.
    Keywords: Micro Finance Institution, Baitul Maal wa Tamwil, Indonesia, Islamic banking
    JEL: P49 G21
    Date: 2013–03
  6. By: Grimm, Michael (University of Passau); Hartwig, Renate (University of Passau); Lay, Jann (German Institute of Global and Area Studies (GIGA))
    Abstract: Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an 'insurance regime' comply with sharing norms, are insured but reduce investment in their firm, whereas entrepreneurs in the 'growth regime' are not insured but take undistorted investment decisions. The choice of regime depends on the redistributive pressure, the willingness to take risk, and the return on investment.
    Keywords: forced solidarity, informal insurance, investment, micro and small enterprises, sharing, Sub-Saharan Africa
    JEL: D13 D22 D92 O12 O43
    Date: 2013–02
  7. By: Claudia Martínez A.; Esteban Puentes; Jaime Ruiz-Tagle
    Abstract: Using a randomized controlled trial of a large-scale publicly run micro-entrepreneurship program in Chile, we assess the effectiveness of business training and asset transfers on individuals’ employment and income. About half of the participants had not yet started their businesses at intervention, allowing us to study the program effects by baseline economic activity. To analyze the shape of the production function, two levels of asset transfers are allocated. We find that the program does significantly increase individuals’ employment and income by 18% and 32% respectively after one year and significantly improves the business practices of its beneficiaries. The program seems more effective for individuals who are unemployed at the beginning of the program, followed by the selfemployed at the baseline. The effect on wage earners is positive only for low-income individuals. This is consistent with the presence of fixed costs. The additional transfer of assets has a positive and significant effect on employment and self-employment. However, the additional transfer does not have a statistically significant effect on labor and household income, consistent with rapidly decreasing returns in the production function.
    Date: 2013–03
  8. By: De Giorgi, Giacomo; Rahman, Aminur
    Abstract: Informality is pervasive in developing countries. In Bangladesh, the majority of firms are informal and as such they might not have access to prime markets, while lowering the tax base. The authors implemented an information campaign on registration, including both the step-by-step procedures and the potential benefits from registration. They find that the treatment made firms more aware of the procedures, but had no impact on actual registration. The results point toward potentially low benefits and high indirect costs of registration as the main barriers to formality (e.g. access to markets, taxation, labor and product regulations).
    Keywords: E-Business,Economic Theory&Research,Microfinance,Access to Finance,Technology Industry
    Date: 2013–03–01

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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