nep-mfd New Economics Papers
on Microfinance
Issue of 2013‒06‒04
two papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Does Access to Finance Matter in Microenterprise Growth? Evidence from Bangladesh By Khandker, Shahidur; Samad, Hussain; Ali, Rubaba
  2. Assessing the Viability of a Rural Microfinance Network : The Case of FONGS FINRURAL By AGAÏ, Oniankitan Gregoire

  1. By: Khandker, Shahidur; Samad, Hussain; Ali, Rubaba
    Abstract: In less-developed economies such as Bangladesh where the farm sector is the major source of employment and income, the rural nonfarm sector (RNF) often as an additional source of income increasingly plays an important role in fostering the development of the rural economy, and microenterprise activities constitute a significant share of this sector. However, the key to participation in such activities requires investment and access to adequate funds. This paper investigates the role of access to finance in promoting efficiency and growth of microenterprise activities. Our findings suggest that the households engaged in microenterprise activities besides farm and other nonfarm activities are much better off (in terms of income, expenditure and poverty) than those who do not engage in such activities. However, fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit) although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. Our findings suggest that credit constraints may reduce the enterprise profit margin by as much as 13.6 percent per year. As such, further in-depth studies should explore why microfinance institutions (MFIs) have not been more helpful in promoting microenterprise growth in Bangladesh.
    Keywords: Micro-enterprise development, access to finance, Community/Rural/Urban Development, Financial Economics, International Development,
    Date: 2013
  2. By: AGAÏ, Oniankitan Gregoire
    Abstract: This paper endeavours to assess the viability of the FONGS FINRURAL, a nascent network of 09 rural savings and credit cooperatives in Senegal. More specifically it strives to measure first how the social and financial performance and the governance vary among the network affiliated organizations, and second to what extent all this aspects in each MFI could affect the viability of the network. For cause of data availability, the research was carried on 7 out of the 9 affiliated MFIs. The methodology has consisted first in the exploitation of financial reports, financial statements, business plans, manual of procedures, minutes, reports and any kind of internal documents seeming useful and second in visits at basic affiliated associations and client information. Four data collection tools were used: the factsheet of financial assessment devised by BRS and ADA, the ECHOS© tool of social performance assessment of Incofin, version 2012, the aggregated index of governance grid, and specific interview grids to each MFIs based on their financial and social performance recorded and on their governance score as well. Financial data were collected over four years (2008-2011), while social and governance data were a snapshot of the MFIs as of may-august 2012. Different descriptive statistics were used for comparisons. The coefficient of correlation rho of Spearman was used to make links between financial performance, social performance and governance. It comes out from the peer group analysis that the membership of the entire seven MFIs, dominated by women (50%), is growing over years with an average of 23% sharply higher than that of the country (8.7%). This trend presents however some specificities pertaining to each MFI. In the same vein, the network records an increase in savings collection which is however concentrated within 02 MFIs (29%) which contributed for 54% of the total deposit of the entire network in 2011. If for the first MFI (CREC of Méckhé), the situation is due to the involvement of its groups membership, the second (MEC of v Tattaguine) owes its records to its savings policy mainly based on high rate of compulsory savings (33%) as requirement for loan application. Regarding the credit delivery, it appears that except ordinary loans, most of the loan products catered for are seasonal or working capital loans and investment loans (more than one year) with bullet repayment albeit variability in the loans maturity. To provide such credit products, MFIs rely on three main sources: the deposits, the borrowings and their equity. Most of the MFIs provide their loans from the member’s deposits and tend to report improvement of their leverage except the MEC of Dakar and that of Malicounda. Overall, all the MFIs loan portfolios are growing with an average growth rate of 17% except the CREC of Méckhé which faced a decrease in its portfolio of about 47% over the four years. However this MFI still records the highest gross portfolio amount compared to the others. Nevertheless, the growth in portfolio is facing also a growth in portfolio at risk 180 days for all the seven surveyed MFIs meaning some weaknesses in the loan portfolio management. In contrast to the PAR, some improvements are reported in operating expenses ratios which were roughly fewer than 20% except at the MEC of Dakar which mostly recorded OER over 40% in 2011 and at the MEC of Malicounda with about 90% in 2009. As consequence, the OSS of the entire 07 MFIs was appreciable between 2008 and 2010 (127%-148%) but dropped down to 88% in 2011 due to high operating expenses at the MECs of Tattaguine and Pékesse. The results also reveals that albeit claiming to be social oriented MFIs, the entire MFIs lack adequate tools, information and indicators to track and to prove that they are putting into practice their social mission, which often was not clearly stated. Based on the ECHOS© scale, it appears that the MFIs recorded low social performance in general (55%) but seemed to get better score in access and outreach and customers services, while social mission, human resources and social responsibility are lessened. vi Regarding the governance, the score reveals some acceptable governance (62%) however with some differences between institutions. The results of linkages between financial performance, social performance and governance reveals no trade-off between financial and social performance, rather it reveals significant synergies between governance and social perform, and between OSS and human resources. All these results prove that rural microfinance institutions, rather rural microfinance network can be viable. It is just a matter of more governance, more discipline in procedure and more reportage of required information.
    Keywords: microfinance, savings, credit, financial performance, social perfomance, governance, Portfolio at Risk, Operational selfsufficiency
    JEL: G2 G21 G23 G28 G3 Y4
    Date: 2012

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