nep-mfd New Economics Papers
on Microfinance
Issue of 2013‒09‒28
four papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Group Lending Without Joint Liability By de Quidt, Jonathan; Fetzer, Thiemo; Ghatak, Maitreesh
  2. What are we learning from business training and entrepreneurship evaluations around the developing world? By McKenzie, David J.; Woodruff, Christopher
  3. Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms By Degryse, Hans; Lu, Liping; Ongena, Steven
  4. Finance and Poverty: Evidence from India By Ayyagari, Meghana; Beck, Thorsten; Hoseini, Mohammad

  1. By: de Quidt, Jonathan; Fetzer, Thiemo; Ghatak, Maitreesh
    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: group lending; joint liability; micro finance; mutual insurance
    JEL: G11 G21 O12 O16
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:9578&r=mfd
  2. By: McKenzie, David J.; Woodruff, Christopher
    Abstract: Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.
    Keywords: business training; consulting; firm productivity; randomized experiments
    JEL: J16 L26 M53 O12
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:9564&r=mfd
  3. By: Degryse, Hans; Lu, Liping; Ongena, Steven
    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: Co-Funding; Formal Finance; Growth; Informal Finance
    JEL: G21 G32 P2
    Date: 2013–06
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:9519&r=mfd
  4. By: Ayyagari, Meghana; Beck, Thorsten; Hoseini, Mohammad
    Abstract: Using state-level data from India over the period 1983 to 2005, this paper gauges the effect of financial deepening and outreach on rural poverty. Following the 1991 liberalization episode, we find a strong negative relationship between financial deepening, rather than financial breadth, and rural poverty. Instrumental variable regressions suggest that this relationship is robust to omitted variable and endogeneity biases. We also find that financial deepening has reduced poverty rates especially among self-employed in the rural areas, while at the same time it supported an inter-state migration trend from rural areas into the tertiary sector in urban areas, consistent with financial deepening being driven by credit to the tertiary sector. This suggests that financial deepening contributed to poverty alleviation in rural areas by fostering entrepreneurship and inducing geographic-sectoral migration.
    Keywords: Economic development; Entrepreneurship; Financial liberalization; India; Migration; Poverty alleviation
    JEL: G21 G28 O15 O16
    Date: 2013–06
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:9497&r=mfd

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