New Economics Papers
on Microfinance
Issue of 2013‒07‒15
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco By Angelucci, Manuela; Karlan, Dean; Zinman, Jonathan
  2. Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico By Karlan, Dean; Zinman, Jonathan
  3. The Credit-worthiness of a borrower and the selection process in Micro-finance: A case study from the urban slums of India By Paul, Sohini
  4. Microfinance Banks and Household Access to Finance By Brown, Martin; Guin, Benjamin; Kirschenmann, Karolin
  5. Informal or formal financing? Or both? First evidence on the co-funding of Chinese firms By Degryse, Hans; Lu, Liping; Ongena, Steven
  6. Household's willingness to pay for health microinsurance and its impact on actual take-up: results from a field experiment in Senegal By BONAN Jacopo; LEMAY-BOUCHER Philippe; TENIKUE Michel

  1. By: Angelucci, Manuela (University of Michigan); Karlan, Dean (Yale University); Zinman, Jonathan (Dartmouth College)
    Abstract: Theory and evidence have raised concerns that microcredit does more harm than good, particularly when offered at high interest rates. We use a clustered randomized trial, and household surveys of eligible borrowers and their businesses, to estimate impacts from an expansion of group lending at 110% APR by the largest microlender in Mexico. Average effects on a rich set of outcomes measured 18-34 months post-expansion suggest some good and little harm. Other estimators identify heterogeneous treatment effects and effects on outcome distributions, but again yield little support for the hypothesis that microcredit causes harm.
    Date: 2013–05
  2. By: Karlan, Dean (Yale University); Zinman, Jonathan (Dartmouth College)
    Date: 2013–05
  3. By: Paul, Sohini
    Abstract: This paper examines whether urban Micro-Finance Institutions (MFIs) consider proxy/ hidden collateral in the absence of physical as well as social collateral to judge the creditworthiness of a borrower. Micro-finance institutes operating in urban slums adopt an individual lending mechanism in several cases since borrowers are not willing to bear joint liability due to the acute problem of migration. Therefore, such urban MFIs that offer individual loans become extra-cautious to minimise default risk. To be specific, we study whether an MFI considers ownership of a 10ftx10ft room in a slum as a hidden selection criterion in a loan programme. Room ownership, on the one hand, indicates stability in a particular location, but on the other hand, it infers income generation capability of an aspirant borrower. We use a primary survey database collected from an NGO, Navnirman Samaj Vikas Kendra that provides micro credit in four slums of north Mumbai in India. We find that the probability of getting selected in a micro credit programme becomes significantly higher if a loan applicant owns a room in a slum compared to one who lives in a rented room. MFIs appear to be more concerned about shielding themselves from default than fulfilling the broad goal of maximising social welfare by reaching the poorest of the poor. We present our study with the caveat that the results may not be generalizable, since they are based on a case study.
    Keywords: Micro-finance; Credit-worthiness; Financial Sustainability; Urban slums
    JEL: G20 G21
    Date: 2013–05–16
  4. By: Brown, Martin; Guin, Benjamin; Kirschenmann, Karolin
    Abstract: We examine how the expansion of the branch network of a microfinance bank between 2006 and 2010 in South-East Europe has affected the use of bank accounts by households in the region. Our analysis is based on survey data reporting the use of bank accounts, socioeconomic characteristics and geographic location of 8,000 households in four countries. We geocode the location of each household and match this data with branch location information for the major microfinance bank in the region, ProCredit Bank, as well as for a large retail bank in each country. We report three key results: First, in locations where ProCredit opened a new branch between 2006 and 2010 the share of households with a bank account increased more than in locations where it did not open a new branch. Second, a new ProCredit branch leads to a stronger increase in the use of bank accounts among low- and middle-income households than among high-income households. Third, we find that ProCredit not only opens branches in areas with high economic activity, but also in areas where average household incomes are low. Overall our results suggest that microfinance banks do expand the frontier of finance as compared to ordinary retail banks.
    Keywords: Access to finance, Microfinance, Bank-ownership, Mission drift.
    JEL: G21 L2 O16 P34
    Date: 2013–02
  5. By: Degryse, Hans (BOFIT); Lu, Liping (BOFIT); Ongena, Steven (BOFIT)
    Abstract: The recent financial crisis has reopened the debate on the impact of informal and formal finance on firm growth in developing countries. Using unique survey data, we find that informal finance is associated with higher sales growth for small firms and lower sales growth for large firms. We identify a complementary effect between informal and formal finance for the sales growth of small firms, but not for large firms. Informal finance offers informational and monitoring advantages, while formal finance offers relatively inexpensive funds. Co-funding, i.e. the simultaneous use of formal and informal finance, is the optimal choice for small firms.
    Keywords: informal finance; formal finance; co-funding; growth
    JEL: G21 G32 P29
    Date: 2013–06–18
  6. By: BONAN Jacopo; LEMAY-BOUCHER Philippe; TENIKUE Michel
    Abstract: In the region of Thies in Senegal community-based health insurance schemes(CBHI)have been present for years. And yet despite the benefits they offer, there remain low take-up rates. Our paper measures the willingness to pay (WTP) for CBHI premiums in such context. Our results highlight the role of income, wealth and risk preferences as determinants of WTP. We also provide an analysis of the predictive power of WTP on the actual take-up of insurance following our offering of membership to a sample of 360 households. WTP has a positive and significant impact on actual take-up.
    Keywords: Community-based health insurance; Willingness to pay; Africa; Senegal
    JEL: D10
    Date: 2013–07

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