New Economics Papers
on Microfinance
Issue of 2013‒05‒11
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. A helping hand or the long arm of the law ? experimental evidence on what governments can do to formalize firms By de Andrade, Gustavo Henrique; Bruhn, Miriam; McKenzie, David
  2. Informality and profitability : evidence from a new firm survey in Ecuador By Medvedev, Denis; Oviedo, Ana Maria
  3. Group-participation and Women Empowerment: Matching as an Evaluation Estimator A District-level Study in West Bengal, India By Joysankar Bhattacharya; Sarmila Banerjee

  1. By: de Andrade, Gustavo Henrique; Bruhn, Miriam; McKenzie, David
    Abstract: Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This paper reports on a field experiment conducted in Belo Horizonte, Brazil, in order to test which government actions work in getting informal firms to register. Firms were randomized to a control group or one of four treatment groups: the first received information about how to formalize; the second received this information and free registration costs along with the use of an accountant for a year; the third group was assigned to receive an enforcement visit from a municipal inspector; while the fourth group was assigned to have a neighboring firm receive an enforcement visit to see if enforcement has spillovers. The analysis finds zero or negative impacts of information and free cost treatments, and a significant but small increase in formalization from inspections. Estimates of the impact of actually receiving an inspection give a 21 to 27 percentage point increase in the likelihood of formalizing. The results show most informal firms will not formalize unless forced to do so, suggesting formality offers little private benefit to them. But the tax revenue benefits to the government of bringing firms of this size into the formal system more than offset the costs of inspections.
    Keywords: Microfinance,E-Business,Small Scale Enterprise,Knowledge for Development,Information Security&Privacy
    Date: 2013–05–01
  2. By: Medvedev, Denis; Oviedo, Ana Maria
    Abstract: This paper estimates the impact of informality on firm profits using a new firm-level survey designed specifically for this study. The survey was administered to about 1,200 firms with 50 employees or less in Ecuador's two largest cities, Quito and Guayaquil, plus two main centers of economic activity near the northern and southern borders. The paper's results confirm that the extent of firms'compliance with a set of regulatory requirements is linked to the perceived costs and benefits of informality, such as the probability of detection by the authorities and the likelihood of being fined. Nonetheless, taking into account the non-random placement of firms along the formality-informality spectrum and controlling for a large set of firm, owner, and location characteristics, the paper finds that more formal firms tend to be more profitable and have higher output per worker. This impact operates, inter alia, through more formal firms'ability to obtain improved access to credit and achieve higher sales by issuing receipts to clients.
    Keywords: Access to Finance,Microfinance,E-Business,Banks&Banking Reform,Debt Markets
    Date: 2013–05–01
  3. By: Joysankar Bhattacharya; Sarmila Banerjee
    Abstract: The paper aims at isolating the effect of group-participation on women empowerment using primary data on 1500 individual women collected during 2007-08 from two districts of West Bengal, India, namely Hooghly and South 24-Parganas. Since the impact evaluation exercise typically suffers from the problem of counterfactual, in the absence of biologically identical observations proxy has been constructed in terms of pairing of statistically identical observations by applying matching techniques based on propensity-scores. It is observed that mere inclusion in a SHG is not sufficient for any woman to enjoy the benefits of better connectivity with the social capital. Here both the duration of membership and the quality of participation matter. Moreover, in terms of a comparison of the probability of inclusion in the program with the proportion of actual inclusion for subjects with same p-scores, the extent of program mismatch has been assessed. This indicates a bias from the supply side where the more likely agents are being included in the absence of special effort to reach out the relatively more vulnerable ones.
    Keywords: Women Empowerment, SHG-Microfinance, Propensity Score Matching, Quality of Participation, Program Out-reach
    JEL: C21 H43 I38
    Date: 2013–05

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