nep-mfd New Economics Papers
on Microfinance
Issue of 2014‒04‒18
ten papers chosen by
Olivier Dagnelie
University of Namur

  1. Impact of seasonality-adjusted flexible microcredit on repayment and food consumption : experimental evidence from rural Bangladesh By Shonchoy, Abu S.; Kurosaki, Takashi
  2. Does microfinance change informal lending in village economies? Evidence from Bangladesh By Asad Islam; Chau Nguyen; Russell Smyth
  3. What are we learning from business training and entrepreneurship evaluations around the developing world? By McKenzie, David; Woodruff, Christopher
  4. Just a Few Cents Each Day: Can Fixed Regular Deposits Overcome Savings Constraints? By Anett Hofmann
  5. Microcredit and women's empowerment in Bangladesh: a structural equation model for categorical observed variables By Cristina Elisa Orso; Enrico Fabrizi
  6. The Impact of Microfinance Interventions: A Meta-analysis By Sefa K. Awaworyi
  7. Sustainability and Outreach: A Comparative Study of MFIs in South Asia and Latin America & the Caribbean By Sefa Kwami Awaworyi; Ana Marr
  8. Community-Based Development and Aggregate Shocks in Developing Countries: The Experience of an NGO in Pakistan By Kurosaki, Takashi; Khan, Hidayat Ullah
  9. Drivers of Poverty Alleviation Process: Empirical Study of Community Based Organizations from India By Sapovadia, Vrajlal; Patel, Akash
  10. Function of Savings and Credit Unions in Laos: From a Village-SCU Survey in Vientiane Vicinity By Mieno, Fumiharu; Chaleunsinh, Chansathith

  1. By: Shonchoy, Abu S.; Kurosaki, Takashi
    Abstract: The mismatch between credit repayments and income seasonality poses a challenge for microfinance institutions (MFIs) working in developing countries. For instance, in northern Bangladesh, income and consumption downfalls during the lean season after the transplanting of major paddy crops are a serious threat to a household's economy. Poor landless agricultural wage laborers suffer the most owing to this seasonality as they face difficulties in smoothing their consumption. However, in designing microcredit products, MFIs do not usually provide flexibility or seasonal adjustment during the lean season. This is mainly because MFIs are afraid that such flexibility might break the repayment discipline of borrowers, resulting in higher default rates. We thus conducted a randomized controlled trial in 2011-12 in northern Bangladesh to empirically test whether seasonality-adjusted flexible microcredit leads to an increase in repayment problems for MFIs as well as whether it can increase and stabilize consumption of borrower households. Our results suggest no statistically discernible difference among the treatment arms in case of default, overdue amount, or repayment frequency. On the other hand, we find no positive impact of repayment flexibility on immediate food consumption during the period of seasonality, except for in-kind full moratorium treatment group. After a year of initial intervention, however, we see positive changes in food intake during the lean season. Thus, our preliminary results are in favor of seasonality-adjusted flexible microcredit.
    Keywords: Bangladesh, Microfinance, Rural credit, Consumption, Microcredit, Default, Seasonality, Consumption Smoothing
    JEL: D12 G21 O16
    Date: 2014–03
  2. By: Asad Islam; Chau Nguyen; Russell Smyth
    Abstract: This paper examines how availability of microfinance influences households’ borrowing from informal sources in village economies. It uses a unique household level panel data set, which spans more than two decades (1987-2008), from rural villages in Bangladesh. We find that households’ access to microfinance reduces the incidence of borrowing from informal sources, but not the amount of borrowing. There are heterogeneous effects in which less poor households benefit more in terms of reducing their reliance on informal borrowing and the benefit accrues over time. We also find heterogeneity across households with respect to occupation, which can be explained by differing trends in occupational transition between microfinance borrowers and non-borrowers. In terms of gender differences, while women are target clients for MFIs, having access to microfinance increases women’s informal borrowing for small consumption usage, without facilitating access to new business opportunities.
    Keywords: microfinance, Bangladesh, informal loan, long-term effects
    JEL: C21 C23 G21 O12 Q00
    Date: 2014–04
  3. By: McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick)
    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; Randomized experiments; Firm Productivity.
    Date: 2013
  4. By: Anett Hofmann
    Abstract: Empirical evidence suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. This paper argues that individuals may face even higher negative returns to saving at home due to hyperbolic discounting and claims on savings by relatives. I outline a model that shows why hyperbolic discounters cannot reach their welfare-maximising level of savings, and why a commitment savings product with fixed period contributions can increase their achievable savings level. Using a novel dataset obtained from a small microfinance institution in Bangladesh, the paper then presents some first empirical evidence on the effects of a commitment savings product with fixed regular instalments. I find that the introduction of the regular saver product was associated with an increase in individuals' savings contributions of 180 percent after a periods of five months. The paper concludes that the provision of commitment savings products with fixed contributions may reduce savings constraints and increase individuals' welfare, providing a substitute for costly informal mechanisms. However, since the data originates from a field study with self-selection problems rather than a randomized controlled experiment, further studies are needed to confirm this effect.
    Keywords: commitment savings, hyperbolic discounting, Bangladesh
    JEL: D14 O11 O16
    Date: 2014–03
  5. By: Cristina Elisa Orso (Dipartimento di Economia, Università  Ca' Foscari); Enrico Fabrizi (DISCE, Università  Cattolica)
    Abstract: This paper employs the Bangladesh Demographic and Health Survey (2004) to explore the relationship between participation in microcredit programs and women's empowerment using a structural equation model with categorical observed variables. A MCMC-based Bayesian approach is adopted for estimation. Along with participation in microcredit, we consider a variety of socio-cultural aspects as potential predictors of empowerment in the Bangladeshi context including men's perceptions about women's status. We conclude that gender community norms are strongly rooted in women's minds regardless of the partners' perceptions of women's status, and microcredit interventions may actually contribute to change gender beliefs and social attitudes.
    Keywords: Microcredit programs, Women's empowerment, Gender relations, Asia, Bangladesh, Bayesian approach.
    JEL: J10 O15 O19
    Date: 2013–10
  6. By: Sefa K. Awaworyi
    Abstract: The evidence base on the impact of microfinance interventions is quite large and is accompanied by a high level of heterogeneity making it difficult to draw a general conclusion on the effects of microfinance. Based on 1,111 extracted estimates of microfinance’s effects from 31 individual studies, we address this challenge using meta-analysis tools to synthesize the evidence on the impact of microfinance on poverty, empowerment, microenterprises, education and health. After controlling for within and between-study dependence and publication selection bias, precision effect and funnel asymmetry test (PET/FAT) results indicate that microfinance generally has a positive effect on indicators like assets, income, women’s status, education and consumption/expenditure. On the other hand, after controlling for moderating variables, multivariate meta-regression analysis (MRA) results report a marginal adverse effect of microfinance on poverty measured by assets, income and consumption/expenditure, but a moderate positive effect on microenterprises is observed. MRA results also support the evidence presented by the PET/FAT analysis for microfinance and empowerment after controlling for moderating variables; however, adverse effects are observed for education and health.
    Date: 2014–04
  7. By: Sefa Kwami Awaworyi; Ana Marr
    Abstract: Previous studies indicate that microfinance institutions (MFIs) in Latin America and the Caribbean (LAC) have different operational strategies to MFIs in South Asia (SA). Given the recent emphasis placed on the feasibility of MFIs to achieve the dual goals of outreach and sustainability concurrently, we examine and compare the relationship between sustainability and outreach of MFIs in LAC with MFIs in SA. Our results indicate that trade-offs exist between outreach and sustainability in both regions. However, the severity of trade-off is dependent on which goal MFIs decide to focus on in each region.
    Keywords: Microfinance, Sustainability, Outreach, Financial Performance, South Asia, Latin America
    Date: 2014–04
  8. By: Kurosaki, Takashi; Khan, Hidayat Ullah
    Abstract: This paper empirically investigates whether a community-based development (CBD) approach is effective in mitigating the ill effects of aggregate shocks. The analysis is based on a three-year panel dataset of approximately 600 households in rural Pakistan where a local NGO has implemented CBD interventions. The results show that the mitigating effect was absent when the control group included both non-member households in villages under CBD interventions and households in villages without such interventions. On the other hand, within the former type of villages, a strong spillover effect from member to non-member households was found, mitigating the ill effects of aggregate shocks. Furthermore, CBD interventions accompanied by micro infrastructure construction or microcredit provision were found to be effective in mitigating the ill effects. These results suggest the possibility that whether a CBD approach mitigates aggregate shocks depends on the type of intervention and the nature of market failures.
    Keywords: community-based development, consumption smoothing, aggregate shocks, microfinance, Pakistan
    JEL: O12 L31 D12
    Date: 2014–03
  9. By: Sapovadia, Vrajlal; Patel, Akash
    Abstract: Poverty is a disease across the world and a chronic disease in the developing countries like India. Just less than 3 years away from Millennium Development Goals (MDGs) deadline of 2015, 38% people of the total population of 1020 million are below poverty line in 2013. India reduced multidimensional poverty significantly between 1999 and 2006, but the poverty reduction was uneven across the states and social groups. India will take another 41 years to reduce poverty to level zero if the poverty reduction rate and other compelling factors remain constant . Participation and inclusion are central to a new approach to poverty reduction. Participation in economic activities coupled with inclusive growth is paramount to the process of poverty reduction programs. Rather than merely cash transfer schemes and unemployment allowances, the governments are emphasizing on framing policies to create institutions, systems and processes to bring poor people in economic participation. Policies are enabling civil societies and small & medium size enterprises to become participative in poverty reduction programs through empowering communities. Community based organizations like cooperatives, special companies, societies, trust, Self Help Group (SHG) are ideal instruments in such strategy. Such organizations have proven to be key organizational form in building new models to combat social exclusion and poverty. Community based organizations may be self initiated or supported through NGOs, business and government. The organizations may be formally registered as cooperative society or public trust or society under Society Registration Act 1860 or company under Companies Act 1956 or may be informal like Self-Help-Group (SHG). Cooperatives, as a socio-economic business enterprise empower people by enabling even the poorest segments of the population to participate in economic progress; they create job opportunities for those who have skills but little or no capital; and they provide protection by organizing mutual help in communities. NGOs, Trusts and Sicieties allow creating a platform for development initiatives and bringing together a range of community to foster opportunities for decent work and social inclusion. The members learn from each other, innovate together and, by increasing control over livelihoods, restore the dignity that the experience of poverty destroys. India is home of 500,000 cooperatives and similar number of other type of community based organizations. Many of them are engaged in helping poor community.
    Keywords: Poverty Alleviation, Community Based organization
    JEL: A13 A14
    Date: 2013–12–30
  10. By: Mieno, Fumiharu; Chaleunsinh, Chansathith
    Abstract: Savings and Credit Unions (SCUs), a type of self-help group, have been rapidly forming in Laotian villages since the early 2000s.This paper investigates their characteristics, activities, and exogenous determinants of their activity based on an original questionnaire survey.It presents a descriptive analysis of endogenous factors such as member ratios and deposit and loan amounts and exogenous factors such as SCUs' age, location, and village characteristics with descriptive analyses.The results revealed that SCUs' membership is formed early in their operating history and remains generally unchanged. Loans for production purposes are a larger percentage of SCUs' lending during their early years, shifting to consumption loans in later years. SCUs' performance features differ after five years in operation and in villages that have diversified away from agriculture. Economic diversification and SCUs' sustainability are related to immigrants settling in villages since the Laotian civil war. We conclude that SCUs serve obvious social and economic purposes and that prospects for their sustainability are greater in villages with diversified economies.
    Date: 2014–03

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