New Economics Papers
on Microfinance
Issue of 2014‒07‒28
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Self-Selection into Credit Markets: Evidence from Agriculture in Mali By LORI BEAMAN; DEAN KARLAN; BRAM THUYSBAERT; CHRISTOPHER UDRY
  2. Microfinance in Armenia: Sector characteristics and adaptation strategies By Knar Khachatryan; Emma Avetisyan; Frédéric Teulon
  3. The effect of Microfinance Institutions on the growth of small businesses in Kumasi, Ashanti Region of Ghana By Mintah, Emmanuel Kofi; Attefah, Kingsford Justice; Amoako-Agyeman, Francis Kofi Amoako-Agyeman
  4. Recovery Performance of Primary Agriculture Credit Societies in India: An Assessment By Mazumder, Rabin; Chakravarty, Chandrasekhar; Bhandari, Amit Kumar
  5. Understanding Financial Inclusion in China By Zuzana Fungácová; Laurent Weill
  6. Knowledge Economy and Financial Sector Competition in African Countries By Asongu, Simplice A

    Abstract: We partnered with a micro-lender in Mali to randomize credit offers at the village level. Then, in no-loan control villages, we gave cash grants to randomly selected households. These grants led to higher agricultural investments and profits, thus showing that liquidity constraints bind with respect to agricultural investment. In loan-villages, we gave grants to a random subset of farmers who (endogenously) did not borrow. These farmers have lower – in fact zero – marginal returns to the grants. Thus we find important heterogeneity in returns to investment and strong evidence that farmers with higher marginal returns to investment self-select into lending programs.
    Keywords: credit markets; agriculture; returns to capital
    JEL: D21 D92 O12 O16 Q12 Q14
    Date: 2014–05
  2. By: Knar Khachatryan; Emma Avetisyan; Frédéric Teulon
    Abstract: The microfinance sector is relatively new in Armenia, and has shown significant increase over the last decade. We designed a qualitative research to explore the main characteristic and adaptation strategies of the microfinance sector in this country. Our findings indicate that the emergence of MFIs was subject to offering a complementary effort in filing the gap in the financial services industry. Its main objective was to address the increasing unemployment and poverty resulted from transitional shock. The microfinance market is segmented with different programs serving different populations. We found range of microfinance services, unequal coverage in terms of geography and of business sectors, revenues, unequal VAT treatment between commercial banks and MFIs, regulated Microfinance operations, and lack of cooperation within the Microfinance sector and government support as main problems of the sector development.
    Keywords: Microfinance (MFI), adaptation strategy, poverty alleviation, developing economies, not for-profit firms.
    Date: 2014–07–15
  3. By: Mintah, Emmanuel Kofi; Attefah, Kingsford Justice; Amoako-Agyeman, Francis Kofi Amoako-Agyeman
    Abstract: The influx of Microfinance institutions in Ashanti Region of Ghana over the past two decades and their importance to small businesses has attracted heated debate. This study reports on the effect of microfinance Institutions (MFIs) on the growth of Small Businesses(SBs). The main data collection instruments were questionnaires and interview. Twenty(20) Microfinance institutions and two hundred (200) Small Businesses respectively were sampled for the study. The study assessed the services Microfinance Institutions render to Small Businesses, how SBs manage and utilize MFI credits, and the challenges both face in dealing with each other. The study revealed that MFIs provide loans to businesses and create enabling environment to save. The study further showed that SBs use greater portion of their profit to service the loan due to high interest rate and short repayment period. The study therefore recommends that MFIs should give flexible terms of repayment of loan to enable SBs raise the capital needed. The government should provide funds to SBs at no or reduced borrowing cost. It is also recommended that Microfinance Institutions initiate insurance schemes for SBs. SBs should keep proper financial records to enable them measure the growth of their businesses using profitability ratios. Finally SBs should fully implement the advices MFIs offer to them to promote their business growth.
    Keywords: Microfinance, Small business, Growth and development, paradigm shift, impact analysis
    JEL: M1
    Date: 2014–06–15
  4. By: Mazumder, Rabin (Army Institute of Management, Kolkata); Chakravarty, Chandrasekhar (Asia e University); Bhandari, Amit Kumar (Kalyani Institute of Applied Research, Training and Development)
    Abstract: Agricultural credit is one of the most crucial inputs in all agricultural development programmes. Access of rural credit has still remained scarce in India. Primary Agriculture Credit Societies (PACS) working at grass-root level, having direct contact with the rural people and meet their financial requirements. The problem of loan overdue is a serious concern in different regions of the country, as it affects the recycling of funds and loses its economic viability as a lending institution. The present study examines the recovery performance of rural credit given by PACS in six different regions of India namely Central, Northern, Southern, Eastern, North-East and Western. The result suggests that the performance of credit recovery has been low in north-eastern states and high in northern and southern states. Recovery performance of credit is directly proportional to non-agricultural loan to agricultural loan, trained-untrained staff ratio and average member per society and inversely related with proportion of government capital to working capital and real growth rates at constant price. To make all PACS viable and ensure adequate and timely flow of credit, appropriate policies are required from the Reserve Bank of India in collaboration with State Governments.
    Keywords: cooperative, credit, loan overdue, recovery, policy
    JEL: E61 F34 G21 Q13
    Date: 2014–06
  5. By: Zuzana Fungácová (Bank of Finland); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: We use data from the World Bank Global Findex database for 2011 to analyze financial inclusion in China, including comparisons with the other BRICS countries. We find a high level of financial inclusion in China manifested by greater use of formal account and formal saving than in the other BRICS. Financial exclusion, i.e. not having a formal account, is mainly voluntary. The use of formal credit is however less frequent in China than in the other BRICS. Borrowing through family or friends is the most common way of obtaining credit in all the BRICS countries, but other channels for borrowing are not very commonly used by individuals in China. We find that higher income, better education, being a man, and being older are associated with greater use of formal accounts and formal credit in China. Income and education influence the use of alternative sources of borrowing. Overall financial inclusion does not constitute a major problem in China, but such limited use of formal credit can create a challenge for further economic development.
    Keywords: financial inclusion, financial institutions, China
    JEL: G21 O16 P34
    Date: 2014
  6. By: Asongu, Simplice A
    Abstract: The goal of this paper is to assess how knowledge economy (KE) plays out in financial sector competition. It suggests a practicable way to disentangle the effects of different components of KE on various financial sectors. The variables identified under the World Bank’s four knowledge economy index (KEI) are employed. An endogeneity robust panel instrumental variable fixed-effects estimation strategy is employed on data from 53 African countries for the period 1996-2010. The following findings are established. First, education and innovation in terms of scientific and technical publications broadly bear an inverse nexus with financial development. Second, the incidence of information and communication technologies is positive on all financial sectors but increases the non-formal sectors to the detriment of the formal sector. Third, economic incentives have positive implications for all sectors though the formal financial sector benefits most. Fourth, institutional regime is positive (negative) for the semi-formal (informal) financial sector. The findings contribute at the same time to the macroeconomic literature on measuring financial development and respond to the growing fields of informal sector importance, microfinance and mobile banking by means of KE promotion. Policy implications and future research directions are discussed.
    Keywords: Financial development; Knowledge Economy; Africa
    JEL: G21 O10 O34 P00 P48
    Date: 2014–07–10

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