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on Microfinance |
| By: | Thiemo Fetzer; Maitreesh Ghatak; Jonathan de Quidt |
| Abstract: | This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending by some microfinance institutions First we show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how a purely mechanical argument in favor of the use of groups - namely lower transaction costs - may actually be used explicitly by lenders to encourage the creation of social capital. We also carry out some simulations to evaluate quantitatively the welfare impact of alternative forms of lending, and how they relate to social capital. |
| Keywords: | microfinance, group lending, joint liability, mutual insurance |
| JEL: | G11 G21 O12 O16 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stieop:44&r=mfd |
| By: | Dean Karlan (Economic Growth Center, Yale University); Aishwarya Lakshmi Ratan (Economic Growth Center, Yale University); Jonathan Zinman (Department of Economics, Dartmouth College) |
| Abstract: | The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and sub-optimal design. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving has important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice. |
| Keywords: | Savings, Randomized Evalutation, Poverty |
| JEL: | D12 D91 G21 O16 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1027&r=mfd |
| By: | Cole, Shawn; Gine, Xavier; Vickery, James |
| Abstract: | Weather is a key source of income risk for many firms and households, particularly in emerging market economies. This paper uses a randomized controlled trial approach to study how an innovative risk management instrument for hedging rainfall risk affects production decisions among a sample of Indian agricultural firms. The analysis finds that the provision of insurance induces farmers to shift production toward higher-return but higher-risk cash crops, particularly among more-educated farmers. The results support the view that financial innovation may help mitigate the real effects of uninsured production risk. In a second experiment, the study elicits willingness to pay for insurance policies that differ in their contract terms, using the Becker-DeGroot-Marshak mechanism. Willingness-to-pay is increasing in the actuarial value of the insurance, but substantially less than one-for-one, suggesting that farmers'valuations are inconsistent with a fully rational benchmark. |
| Keywords: | Climate Change Economics,Labor Policies,Debt Markets,Insurance Law,Non Bank Financial Institutions |
| Date: | 2013–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6546&r=mfd |
| By: | Diana Cheung (Centre d'Economie de la Sorbonne); Ysaline Padieu (Centre d'Economie de la Sorbonne) |
| Abstract: | This paper estimates the impact of the New Cooperative Medical Scheme (NCMS) on household saving across income quartiles in rural China. We use data from the China Health and Nutrition Survey for the 2006 wave and we run an ordinary least squares regression. We control for the endogeneity of NCMS participation by using an instrumental variable strategy. We find evidence that NCMS has a negative impact on savings of lower-middle-income participants, while it does not affect the poorest households. The negative effect of NCMS on savings of middle-income participants holds when we use propensity score matching estimations as a robustness check. |
| Keywords: | Rural China, New Cooperative Medical Scheme, health insurance, Chinese savings and consumption, propensity score matching. |
| JEL: | C21 D1 I18 O53 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13056&r=mfd |