New Economics Papers
on Microfinance
Issue of 2014‒02‒02
four papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco By Manuela Angelucci; Dean Karlan; Jonathan Zinman
  2. Practice what you preach: Microfinance business models and operational efficiency By Millone M.M.; Bos J.W.B.
  3. Growth patterns of microfinance clients - Evidence from Sub-Saharan Africa By Winkler, Adalbert; Wagner, Charlotte
  4. The use of collateral in formal and informal lending By Kislat, Carmen; Menkhoff, Lukas; Neuberger, Doris

  1. By: Manuela Angelucci; Dean Karlan; Jonathan Zinman
    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 postexpansion suggest no transformative impacts.
    JEL: D12 D22 G21 O12
    Date: 2014–01
  2. By: Millone M.M.; Bos J.W.B. (GSBE)
    Abstract: The microfinance sector is an example of a sector in which firms with different business models coexist. Next to pure for-profit microfinance institutions MFIs, the sector has room for non-profit organizations, and includes social for-profit firms that aim to maximize a double bot- tom line and do well while doing good. We introduce a benchmarking approach that accommodates these three business models and allows us to estimate the efficiency of MFIs when they operate true to their busi- ness model, but also when they drift away from their original design. Using a simple model, we hypothesize that it is more difficult to operate efficiently when pursuing a double bottom line. Our empirical results for a large sample of MFIs are in line with this hypothesis pure for-profit and non-profit FMIs are more efficient than social for-profit MFIs. In addition, efficiency decreases for all MFIs when they move away from their original business model. Increasing the risk of the loan portfolio reduces efficiency and lending to woman increases efficiency. Finally, our finding that multiple lending to borrowers is efficiency-enhancing may help explain the mission drift in microfinance.
    Keywords: Econometrics; Banks; Depository Institutions; Micro Finance Institutions; Mortgages; Microeconomic Analyses of Economic Development; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance;
    JEL: G21 O12 O16 C01
    Date: 2013
  3. By: Winkler, Adalbert; Wagner, Charlotte
    Abstract: We provide evidence on the growth patterns of microfinance clients. Our analysis is motivated by the debate on the impact of microfinance on client income and growth. Based on loan-level data from close to 40,000 clients in Sub-Saharan Africa we make use of an econometric approach widely employed in the firm growth literature. Results show that on average clients exhibit substantial growth between two consecutive loans. Moreover, there is a non-linear relationship between initial client size and growth: smaller businesses show higher growth rates which is marginally counteracted by positive growth of the very large clients. Results also indicate that growth rates decline in the course of the lending relationship. Overall our results provide econometric support for the largely anecdotal evidence presented by microfinance practitioners that their clients grow. At the same time they suggest that the equilibrium size of most clients remains small. --
    JEL: D22 G21 L25
    Date: 2013
  4. By: Kislat, Carmen; Menkhoff, Lukas; Neuberger, Doris
    Abstract: The ex ante theory of collateral states that better informed lenders, such as informal lenders, rely less on collateral. We test this by contrasting the use of collateral between formal and informal lenders in the same market. Indeed, formal lenders rely more often on collateral, controlling for conventional determinants of collateral. Moreover, better information about borrowers has implications within lender groups: first, relationship lending reduces asymmetric information, but only for formal lenders who use collateral less with longer relationship; second, short distance between lender and borrower reduces asymmetric information, mainly for informal lenders who use collateral less at shorter distances. --
    JEL: O16 O17 G21
    Date: 2013

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