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on Microfinance |
| By: | Augsburg, B.; Haas, R. de; Harmgart, H.; Meghir, C. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We use an RCT to analyze the impact of microcredit on poverty reduction. The study population consists of loan applicants to a large microfinance institution in Bosnia and Herzegovina who would have been rejected through regular screening. Access to credit allowed borrowers to start and expand small-scale businesses. THe re is little evidence that this lead to net increases in household income. Households that already had a business and where the borrower had more education, ran down savings, presumably to complement the loan and achieve the minimum investment amount. In less-educated households, where assets were low consumption went down instead. For these households the labor supply of teenage children aged 16-19 increased, and their school attendance declined. |
| Keywords: | Microfinance;liquidity constraints;human capital;randomized controlled trial |
| JEL: | G21 D21 I32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013075&r=mfd |
| By: | Attanasio, O.; Augsburg, B.; Haas, R. de; Fitzsimons, E.; Harmgart, H. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We present evidence from a randomized field experiment in rural Mongolia on the comparative poverty impact of group versus individual microcredit. We find a positive impact of group loans but not of individual loans on entrepreneurship and food consumption. Moreover, group borrowers are less likely to make informal transfers to families and friends while the opposite holds true for individual borrowers. This suggests that joint liability may deter borrowers from using loans for non-investment purposes with stronger impacts as a result. We find no difference in repayment rates between both types of microcredit. |
| Keywords: | Microcredit;poverty;randomized field experiment |
| JEL: | G21 D21 I32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013074&r=mfd |
| By: | Shchetinin, Oleg (Department of Economics, School of Business, Economics and Law, Göteborg University); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | Microfinance institutions are key financial intermediaries between donors and borrowers in developing countries. Loan officers are crucial for establishing and maintaining the relationship between borrowers and microfinance institutions. This paper studies the impact of loan officers on the loan portfolio. We use a survey and choice experiment of 800 loan officers to estimate loan officers’ preferences over loan allocation. We investigate how these preferences are affected by the organizational structure of the microfinance institution, for example, incentive provision. We pay special attention to monitoring of borrowers and loan officer discretion. The most important determinants of loan allocation are related to the financial viability of microfinance institutions rather than the pro-social mission of microfinance. We derive recommendations for the governance of microfinance institutions. |
| Keywords: | Financial intermediation; Microfinance; Loan officers; Loan allocation; Choice experiment |
| JEL: | G21 L31 O16 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0581&r=mfd |
| By: | Gabriela Calderon; Jesse M. Cunha; Giacomo De Giorgi |
| Abstract: | A large share of the poor in developing countries run small enterprises, often earning low incomes. This paper explores whether the poor performance of businesses can be explained by a lack of basic business skills. We randomized the offer of a free, 48-hour business skills course to female entrepreneurs in rural Mexico. We find that those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. Indirect treatment effects on those entrepreneurs randomized out of the program, yet living in treatment villages, are economically meaningful, yet imprecisely measured. We present a simple model of experience and learning that helps interpret our results, and consistent with the theoretical predictions, we find that "low-quality" entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality. |
| JEL: | C93 I25 O12 O14 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19740&r=mfd |
| By: | Xavier Gine (World Bank); James Vickery (Federal Reserve Bank of New York); Shawn Cole (Harvard Business School) |
| Abstract: | Rainfall variation and other weather shocks are a key source of risk for many firms and households, particularly in the developing world. We study how the availability of risk management instruments designed to hedge rainfall risk affects investment and production decisions of small- and medium-scale Indian farmers. We use a field experiment approach, involving randomized provision of rainfall insurance to farmers. While we find little effect on total expenditures, increased insurance induces farmers to substitute production activities towards high-return but higher-risk cash crops, consistent with theoretical predictions. Our results support the view that financial innovation may help ameliorate costs associated with weather variability and other types of risk. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:676&r=mfd |
| By: | Mark Rosenzweig (Economic Growth Center, Yale University); Ahmed Musfiq Mobarak (Economic Growth Center, Yale University) |
| Abstract: | We estimate the general-equilibrium labor market effects of a large-scale randomized intervention in which we designed and marketed a rainfall index insurance product across three states in India. Marketing agricultural insurance to both cultivators and to agricultural wage laborers allows us to test a general-equilibrium model of wage determination in settings where households supplying labor and households hiring labor face weather risk. Consistent with theoretical predictions, we find that both labor demand and equilibrium wages become more rainfall sensitive when cultivators are offered rainfall insurance, because insurance induces cultivators to switch to riskier, higher-yield production methods. The same insurance contract offered to agricultural laborers smoothes wages across rainfall states by inducing changes in labor supply. Policy simulations based on our estimates suggest that selling insurance only to land-owning cultivators and precluding the landless from the insurance market (which is the current regulatory practice in India and other developing countries), makes wage laborers worse off relative to a situation where insurance does not exist at all. The general-equilibrium analysis reveals that the welfare costs of curren regulation are borne by landless laborers, who represent the poorest segment of society and whose risk management options are the most limited. |
| Keywords: | Index insurance, Agricultural Wages, General Equilibrium Effects |
| JEL: | O17 O13 O16 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1035&r=mfd |
| By: | Krislert Samphantharak; Robert Townsend |
| Abstract: | We present a framework for the study of risk and return of household enterprise in developing economies. We make predictions from two polar benchmarks: (1) an economy with Pareto optimal allocations under full risk sharing, and (2) an economy in which each autarky household absorbs risk in isolation. The full risk-sharing benchmark delivers the prediction that only aggregate covariate risk contributes to the risk premium of asset returns while idiosyncratic risk is fully diversified, consistent with analogous results derived from the Capital Asset Pricing Model (CAPM) in the finance literature. The economy with autarky households predicts that overall fluctuation at the household level is the only concern. Our framework allows us to empirically decompose the total risk in production technologies operated by households into aggregate and idiosyncratic components and provides us with a practical procedure to compute risk premium for each component separately. We apply the framework to monthly panel data from a household survey in rural Thailand where there are active risk-sharing and kinship networks. We find that there is nontrivial aggregate risk and there is a positive relationship between the expected returns on assets and the comovement of asset returns with the aggregate returns, as predicted by the full risk-sharing economy. There is residual idiosyncratic risk and it also contributes to the total risk premium, as predicted by the autarky benchmark. However, although idiosyncratic risk is the dominant factor in total risk, our study shows that it accounts for a much smaller share of total risk premium. Exposure to aggregate and idiosyncratic risk is heterogeneous across households as are the corresponding risk-adjusted returns, with important implications for vulnerability and productivity. |
| JEL: | D12 D13 G11 L23 L26 O12 O16 O17 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19738&r=mfd |
| By: | Xiao Yu Wang |
| Abstract: | A rich literature seeks to explain the distinctive features of equilibrium institutions arising in risky environments which lack formal insurance and credit markets. I develop a theory of endogenous matching between heterogeneously risk-averse individuals who, once matched, choose both the riskiness of the income stream they face (ex ante risk management) as well as how to share that risk (ex post risk management). I find a clean condition on the fundamentals of the model for unique positive-assortative and negative-assortative matching in risk attitudes. From this, I derive an intuitive falsifiability condition, discuss support for the theory in existing empirical work, and propose an experimental design to test the theory. Finally, I demonstrate the policy importance of understanding informal insurance as the risk-sharing achieved within the equilibrium network of partnerships, rather than within a single, isolated partnership. A hypothetical policy which reduces aggregate risk is a strict Pareto improvement if the matching is unchanged, but can be seen to harm the most risk-averse individuals and to exacerbate inequality when the endogenous network response is taken into account: the least risk-averse individuals abandon their roles as informal insurers in favor of entrepreneurial partnerships. This results in an increase in the risk borne by the most risk-averse agents, who must now match with each other on low-return investments. |
| Keywords: | assortative matching, risk sharing, informal insurance, formal insurance, group formation |
| JEL: | O1 O13 O16 O17 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:duk:dukeec:13-24&r=mfd |