nep-mfd New Economics Papers
on Microfinance
Issue of 2014‒06‒02
eight papers chosen by
Olivier Dagnelie
University of Namur

  1. Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco By Angelucci, Manuela; Karlan, Dean S.; Zinman, Jonathan
  2. Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock By Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
  3. Husbands and Wives. The powers and perils of participation in a microfinance cooperative for female entrepreneurs By Prof dr Erik Stam; Felix Meier zu Selhausen, MSc MA
  4. Improving Access to Banking: Evidence from Kenya By Allen, Franklin; Carletti, Elena; Cull, Robert; Qian, Jun; Senbet, Lemma W; Valenzuela, Patricio
  5. Loose Knots:Strong versus Weak Commitments to Save for Education in Uganda By Karlan, Dean S.; Linden, Leigh
  6. Mobile banking and mobile phone penetration: which is more pro-poor in Africa? By Asongu Simplice
  7. SHG-Bank Linkage in India in the third Millennium By Pillai, Rajasekharan
  8. New financial development indicators: with a critical contribution to inequality empirics By Asongu Simplice

  1. By: Angelucci, Manuela; Karlan, Dean S.; Zinman, Jonathan
    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, but more positive than negative impacts.
    Keywords: Compartamos Banco; microcredit; microcredit impact; microentrepreneruship
    JEL: D12 D22 G21 O12
    Date: 2014–02
  2. By: Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
    Abstract: Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.
    Keywords: consumption; fungibility; investment; liquidity constraint; liquidity shock; loan use; microcredit; microenterprise
    JEL: D12 D22 D92 G21 O12 O16
    Date: 2013–12
  3. By: Prof dr Erik Stam; Felix Meier zu Selhausen, MSc MA (PhD Candidate, Utrecht University)
    Abstract: Participation in microfinance and in production cooperatives has been identified as a means to improve income and empower female entrepreneurs in developing economies. This study on female entrepreneurs in Western Uganda tests how participation of the husband in the same microfinance cooperative affects gender empowerment. Participation by female entrepreneurs in a microfinance cooperative turns out not to be an unconditional blessing: even though it does deliver higher household incomes, it also deteriorates the female’s household decision-making power when her husband participates in the same self-help group of the microfinance cooperative. This offers new insights for development policy and for entrepreneurship scholars to study the bright and dark sides of microfinance.
    Date: 2014–05
  4. By: Allen, Franklin; Carletti, Elena; Cull, Robert; Qian, Jun; Senbet, Lemma W; Valenzuela, Patricio
    Abstract: Using household surveys and bank penetration data at the district-level in 2006 and 2009, this paper examines the impact of Equity Bank—a leading private commercial bank focusing on microfinance—on the access to banking in Kenya. Unlike other commercial banks in Kenya, Equity Bank pursues distinct branching strategies that target underserved areas and less privileged households. Equity Bank presence has a positive and significant impact on households’ use of bank accounts and bank credit, especially for Kenyans with low income, no salaried job and less education, and those that do not own their own home. The findings are robust to using the district-level proportion of people speaking a minority language as an instrument for Equity Bank presence. It appears that Equity Bank’s business model—providing financial services to population segments typically ignored by traditional commercial banks and generating sustainable profits in the process—can be a solution to the financial access problem that has hindered the development of inclusive financial sectors in many African countries.
    Keywords: bank account; bank penetration; Equity Bank; microfinance; minority language
    JEL: G2 O1 R2
    Date: 2014–02
  5. By: Karlan, Dean S.; Linden, Leigh
    Abstract: Commitment devices offer an opportunity to restrict future choices. However, if severe restrictions deter participation, weaker restrictions may be a more effective means of changing behavior. We test this using a school-based commitment savings device for educational expenses in Uganda. We compare an account fully-committed to educational expenses to an account in which savings are available for cash withdrawal but intended for educational expenses. The weaker commitment generates increased savings in the program accounts and when combined with a parent outreach program, higher expenditures on educational supplies. It also increases scores on an exam covering language and math skills by 0.14 standard deviations. We find no effect for the fully-committed account, and we find no effect for either account on attendance, enrollment, or non-cognitive skills.
    Keywords: Commitment Savings; Educational Resources; Micro-Savings; School Participation
    JEL: D12 D91 I21 O12
    Date: 2014–02
  6. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: The contribution of this paper to complement theoretical and qualitative mobile penetration literature with empirical evidence is twofold: firstly, we assess the income-redistributive effect of mobile phone penetration and; secondly, the instrumentality of financial development dynamics in this nexus. Main findings suggest an equalizing income-redistributive effect of ‘mobile phone penetration’ and ‘mobile banking’, with a higher income-equalizing effect in the latter than in the former. Poverty alleviation channels explaining this difference in inequality mitigating propensity are discussed. The empirical evidence is based on 52 African countries and deviates from mainstream country-specific and microeconomic survey-based approaches.
    Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Africa
    JEL: E00 G20 L96 O17 O33
    Date: 2013–09
  7. By: Pillai, Rajasekharan
    Abstract: India embraced financial inclusion as a major macroeconomic reform initiative to amplify the social approach of banking even in the era of privatisation of banking and finance. The SHG-Bank linkage programme is trying to build partnership between an entrepreneurial class and repository of finance. A growing country like India, with perceptible rural-urban divide, has ample potential to develop and nurture entrepreneurial culture. Bank nationalisation gave an impetus to the social approach of banking. The broad based role of financial inclusion is possible only through the focus oriented partnership of government, banking institutions, RBI, NGOs, MFIs and SHGs. The present paper reviews the SHG-Bank linkage programme during 2001 to 2010 in Indian perspective.
    Keywords: financial inclusion, micro-credit, micro finance, NABARD, pro-poor banking, SHG-Bank Linkage
    JEL: G2 G21 G28
    Date: 2014–05
  8. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: The employment of financial development indicators without due consideration to country/regional specific financial development realities remains an issue of substantial policy relevance. Financial depth in the perspective of money supply is not equal to liquid liabilities in every development context. This paper introduces complementary indicators to the existing Financial Development and Structure Database (FDSD). Dynamic panel system GMM estimations are applied. Different specifications, non-overlapping intervals and control variables are used to check the consistency of estimated coefficients. Our results suggest that from an absolute standpoint (GDP base measures), all financial sectors are pro-poor. However, three interesting findings are drawn from measures of sector importance. (1) The expansion of the formal financial sector to the detriment of other financial sectors has a disequalizing income effect. (2) Growth of informal and semi-formal financial sectors at the expense of the formal financial sector has an income equalizing effect. (3) The positive income redistributive effect of semi-formal finance in financial sector competition is higher than the corresponding impact of informal finance. It unites two streams of research by contributing at the same time to the macroeconomic literature on measuring financial development and responding to the growing field of economic development by means of informal financial sector promotion and microfinance. The paper suggests a practicable way to disentangle the effects of the various financial sectors on economic development. The equation of financial depth in the perspective of money supply to liquid liabilities has put on the margin the burgeoning informal financial sector in developing countries. The phenomenon of mobile banking is such an example.
    Keywords: Financial Development; Shadow Economy; Poverty; Inequality; Africa
    JEL: E00 G20 I30 O17 O55
    Date: 2013–09

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