nep-mfd New Economics Papers
on Microfinance
Issue of 2013‒10‒11
three papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. A new index of the business environment for microfinance By Cull, Robert; Navajas, Sergio; Nishida, Ippei; Zeiler, Renate
  2. From pawn shops to banks : the impact of formal credit on informal households By Ruiz, Claudia
  3. Assessing firms'financing constraints in Brazil By Claessens, Stijn; Sakho, Yaye Seynabou

  1. By: Cull, Robert; Navajas, Sergio; Nishida, Ippei; Zeiler, Renate
    Abstract: This paper describes a new index of the quality of the business environment for microfinance institutions (the Global Microscope on the Microfinance Business Environment). Regressions are used to validate the index by linking it and its subcomponents to microfinance outcomes. The main findings are that the components of the index related to the supporting institutional framework are strongly linked to measures of microfinance penetration (such as microfinance borrowers as a share of total population). Components related to the framework for regulation and supervision are more strongly linked to outcomes at the microfinance institution level, including loan portfolio quality, financial self-sufficiency, average loan size, and the share of lending to women. Many, but not all, of these relationships are robust to using instrumental variables estimation in which a country's general stringency with respect to financial regulation is used as an instrument for the index and its components.
    Keywords: Debt Markets,Banks&Banking Reform,Environmental Economics&Policies,Bankruptcy and Resolution of Financial Distress,Economic Theory&Research
    Date: 2013–09–01
  2. By: Ruiz, Claudia
    Abstract: This paper examines the effects of expanding access to credit on the decisions and welfare of households. It focuses on the entry of Banco Azteca, the first bank in Mexico targeting households from the informal sector. Panel data suggest that informal households in municipalities with Banco Azteca branches experienced several changes in their saving, credit and consumption patterns. In order to estimate the impact of Azteca's entry, the paper develops a dynamic model of household choices in which the bank is endogenously selecting the municipalities for branch openings. The analysis finds that in municipalities in which the bank entered, households were better able to smooth their consumption and accumulate more durable goods even though the overall proportion of households that save went down by 6.6 percent. These results suggest that the use of savings as a buffer on income fluctuations declines once formal credit is available. What is more, these effects vary across households. Among informal households, those who never receive formal job offers have the highest decline in saving rates. The model is also used to evaluate a legislation to cap interest rates levied by formal credit institutions. Simulations suggest that if the Mexican government were to cap the interest rate of Azteca at the rate for traditional banks, Azteca would stop operating in the poorest and least populated municipalities.
    Keywords: Access to Finance,Banks&Banking Reform,Small Area Estimation Poverty Mapping,Economic Theory&Research,Debt Markets
    Date: 2013–10–01
  3. By: Claessens, Stijn; Sakho, Yaye Seynabou
    Abstract: Firm surveys often indicate that firms complain a lot about lack of access to financial services, but financing constraints are difficult to identify, given demand and supply considerations and with only surveys based on firms'perceptions. Specifically, it is difficult to separate demand for access to finance of viable firms with good growth opportunities from that of firms that are not creditworthy and should not deserve financing. In Brazil, one of the main constraints to finance is related to the high level of interest rates, which affects both bank funding costs as well as bank intermediation spreads and, as such, the cost of finance and hence the demand and supply of bank financing. This paper analyzes a unique loan level data set that covers almost a decade of monthly firm bank information from credit registry information that is not publicly available as well as two cross-sections of Brazil's Investment Climate Assessment surveys in 2004 and 2008 that provide detailed information on firms'micro characteristics as well as perceptions of credit. The data allow identification of how firms'characteristics, banks'characteristics, and macro variables affect firms'demand for credit, banks'supply of credit, and access to credit. The paper finds first that access to finance for firms has improved over the decade for small firms, reflecting the deepening of the credit markets. However, access to credit depends strongly on information availability captured in the positive influence of collateral and credit history. Banks perceive that it is less risky to lend to firms that the banks know or that other banks know. Second, firms'loan demand is inelastic to the interest rate at the individual loan category level, possibly reflecting some screening and pricing; however, when the loans are aggregated, the effect of interest rates becomes significant and negative as expected. Third, firms’ loan demand and loan supply are affected by the availability of collateral and, in the case of loan demand, longer maturity. Policy implications point to the importance of reducing asymmetric information between lenders and borrowers and on collateral to alleviate financing constraints for small firms.
    Keywords: Access to Finance,Banks&Banking Reform,Debt Markets,Bankruptcy and Resolution of Financial Distress,Economic Theory&Research
    Date: 2013–09–01

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