nep-mfd New Economics Papers
on Microfinance
Issue of 2014‒11‒01
nine papers chosen by
Olivier Dagnelie
Université de Namur

  1. How does risk management influence production decisions? evidence from a field experiment By Cole, Shawn; Gine, Xavier; Vickery, James
  2. Does Commercial Microfinance Belong to the Financial Sector? Lessons from the Stock Market By Marie Briere; Ariane Szafarz
  3. Index-based weather insurance for developing countries: A review of evidence and a set of propositions for up-scaling By Michael R. CARTER; Alain de JANVRY; Elisabeth SADOULET; Alexandros SARRIS
  4. Macroinsurance for microenterprises : a randomized experiment in post-revolution Egypt By Groh, Matthew; McKenzie, David
  5. Quasi-experimental evidence on the drivers of index-based livestock insurance demand in Southern Ethiopia By Takahashi, Kazushi; Ikegami, Munenobu; Sheahan, Megan; Barrett, Christopher B.
  6. Dropping out of Ethiopia’s Community Based Health Insurance scheme By Mebratie, A.D.; Sparrow, R.A.; Debebe, Z.Y.; Alemu, G.; Bedi, A.S.
  7. The impact of Ethiopia’s pilot community based health insurance scheme on healthcare utilization and cost of care By Mebratie, A.D.; Sparrow, R.A.; Debebe, Z.Y.; Abebaw Ejigie, D.; Alemu, G.; Bedi, A.S.
  8. Non-farm enterprises in rural Africa : new empirical evidence By Nagler, Paula; Naude, Wim
  9. Piloting Macroinsurance for Microenterprises in Post-Revolution Egypt By Matthew Groh; David McKenzie

  1. By: Cole, Shawn; Gine, Xavier; Vickery, James (Federal Reserve Bank of New York)
    Abstract: Weather is a key source of income risk, particularly in emerging market economies. This paper uses a randomized controlled trial involving a sample of Indian farmers to study how an innovative rainfall insurance product affects production decisions. We find that insurance provision induces farmers—particularly educated farmers—to shift production toward higher-return but higher-risk cash crops. Our results support the view that financial innovation can mitigate the real effects of uninsured production risk. Addressing the puzzle of low adoption, we show that payouts improve trust in the product and that farmers shield payouts from claims by relatives.
    Keywords: risk management; financial constraints
    JEL: G22 G32
    Date: 2014–09–01
  2. By: Marie Briere; Ariane Szafarz
    Abstract: This paper is the first to draw a global picture of worldwide microfinance equity by taking full advantage of daily quoted prices. We revisit previous findings showing that investors should consider microfinance as a self-standing sector. Our results are threefold. First, microfinance has become less risky and more closely correlated with the financial sector. This convergence is associated with a decline in the proportion of women borrowers. Second, microfinance and finance shares have equivalent currency exposure. Last, introducing a self-standing microfinance sector presents few diversification benefits. This paper confirms that microfinance has changed dramatically during the last decade.
    Keywords: Microfinance; South Africa; Kenya; Indonesia; Bangladesh; Mexico
    JEL: G10 G15 O16 G21
    Date: 2014–10–09
  3. By: Michael R. CARTER (University of Wisconsin); Alain de JANVRY (FERDI); Elisabeth SADOULET (University of California - Berkeley); Alexandros SARRIS (University of Athens)
    Abstract: Index-based weather insurance is a major institutional innovation that could revolutionize access to formal insurance for millions of smallholder farmers and related individuals. It has been introduced in pilot or experimental form in many countries at the individual or institutional level. Significant efforts have been made in research to assess its impacts on shock coping and risk management, and to contribute to improvements in design and implementation. While impacts have typically been positive where uptake has occurred, uptake has generally been low and in most cases under conditions that were not sustainable. This paper addresses the reasons for this current discrepancy between promise and reality. We conclude on perspectives for improvements in product design, complementary interventions to boost uptake, and strategies for sustainable scaling up of uptake. Specific recommendations include: (1) The first-order importance of reducing basis risk, pursuing for this multiple technological, contractual, and institutional innovations. (2) The need to use risk layering, combining the use of insurance, credit, savings, and risk-reducing investments to optimally address different categories of risk. For this, these various financial products should be offered in a coordinated fashion. (3) Calling on a role for state intervention on two fronts. One is the implementation of public certification standards for maximum basis risk of insurance contracts; the other is “smart” subsidies for learning, data accumulation, initial re-insurance, and catastrophic risks. (4) Using twin-track institutional-level index insurance contracts combined with intra-institution distribution of payouts to reduce basis risk and improve the quality of insurance. For this, credible intra-institutional rules for idiosyncratic transfers must be carefully designed. Finally (5), the need for further research on the determinants of behavior toward risk and insurance, the design of index-based insurance products combined with others risk handling financial instruments, and rigorous impact analyses of on-going programs and experiments.
    JEL: O16 Q12 Q14
    Date: 2014–09
  4. By: Groh, Matthew; McKenzie, David
    Abstract: Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. A randomized experiment was conducted in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how the loan is invested. This lack of effect is attributed to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what some firms profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to help firms cope with shocks when they do occur, but the paper is unable to examine this dimension, because the insurance product did not pay out over the course of the pilot.
    Keywords: Debt Markets,Climate Change Economics,Access to Finance,Bankruptcy and Resolution of Financial Distress,Insurance Law
    Date: 2014–09–01
  5. By: Takahashi, Kazushi; Ikegami, Munenobu; Sheahan, Megan; Barrett, Christopher B.
    Abstract: Microinsurance is widely considered an important tool for sustainable poverty reduction, especially in the face of increasing climate risk. Although index-based microinsurance, which should be free from the classical incentive problems, has attracted considerable attention, uptake rates have generally been weak in low-income rural communities. We explore the purchase patterns of index-based livestock insurance in southern Ethiopia, focusing in particular on the role of accurate product comprehension and price, including the prospective impact of temporary discount coupons on subsequent period demand due to price anchoring effects. We find that randomly distributed learning kits contribute to improving subjects' knowledge of the products; however, we do not find strong evidence that the improved knowledge per se induces greater uptake. We also find that reduced price due to randomly distributed discount coupons has an immediate, positive impact on uptake, without dampening subsequent period demand due to reference-dependence associated with price anchoring effects.
    Keywords: Ethiopia, Insurance, Livestock, Rural economy, Poverty, Climate, Index-Based Livestock Insurance, Quasi-Experiment, Uptake
    JEL: D12 G22 O12
    Date: 2014–09
  6. By: Mebratie, A.D.; Sparrow, R.A.; Debebe, Z.Y.; Alemu, G.; Bedi, A.S.
    Abstract: Low contract renewal rates have been identified as one of the challenges facing the development of community based health insurance schemes (CBHI). This paper uses longitudinal household survey data to examine dropout in the case of Ethiopia’s pilot CBHI scheme, which saw enrolment increases from 41 percent one year after inception to 48 percent a year later. An impressive 82 percent of those who enrolled in the first year renew their subscriptions, while 25 percent who had not enrolled join the scheme. The analysis shows that socio-economic status, a greater understanding of health insurance, and experience with and knowledge of the CBHI scheme reduce dropout. While there are concerns about the quality of care and the treatment meted out to the insured by providers, the overall picture is that returns from the scheme are overwhelmingly positive. For the bulk of households, premiums do not seem to be onerous, basic understanding of health insurance is high and almost all those who are currently enrolled signal their desire to renew contracts.
    Date: 2014–09–29
  7. By: Mebratie, A.D.; Sparrow, R.A.; Debebe, Z.Y.; Abebaw Ejigie, D.; Alemu, G.; Bedi, A.S.
    Abstract: In recent years there has been a proliferation of Community Based Health Insurance (CBHI) schemes designed to enhance access to modern health care services and provide financial protection to workers in the informal and rural sectors. In June 2011, the Government of Ethiopia introduced a pilot CBHI scheme in rural parts of the country. This paper assesses the impact of the scheme on utilization of modern health care and the cost of accessing health care. It adds to the relatively small body of work that provides a rigorous evaluation of CBHI schemes. We find that enrolment leads to a 30 to 41 percent increase in utilization of outpatient care at public facilities, a 45 to 64 percent increase in the frequency of visits to public facilities and at least a 56 percent decline in the cost per visit to public facilities. The effects of the scheme on out-of-pocket spending are not as clear. The impact on utilization and costs combined with a high uptake rate of almost 50 percent within two years of scheme establishment, suggests that this scheme has the potential to meet the goal of universal access to health care.
    Keywords: community based health insurance, outpatient healthcare utilization, out-of-pocket expenditure, Ethiopia
    Date: 2014–10–16
  8. By: Nagler, Paula; Naude, Wim
    Abstract: Although non-farm enterprises are ubiquitous in rural Sub-Saharan Africa, little is yet known about them. The motivation for households to operate enterprises, how productive they are, and why they exit the market are neglected questions. Drawing on the Living Standards Measurement Study -- Integrated Surveys on Agriculture and using discrete choice, selection model and panel data estimators, this paper provide answers using data from Ethiopia, Niger, Nigeria, Malawi, Tanzania, and Uganda. The necessity to cope following shocks, seasonality in agriculture, and household size can push rural households into operating a non-farm enterprise. Households are also pulled into entrepreneurship to exploit opportunities. Access to credit and markets, household wealth, and the education and age of the household head are positively associated with the likelihood of operating an enterprise. The characteristics are also associated with the type of business activity a household operates. Rural and female-headed enterprises and enterprises with young enterprise owners are less productive than urban and male-owned enterprises and enterprises with older owners. Shocks have a negative association with enterprise operation and productivity and a large share of rural enterprises does not operate continuously over a year. Enterprises cease operations because of low profits, a lack of finance, or the effects of idiosyncratic shocks. Overall the findings are indicative that rural enterprises are"small businesses in a big continent"where large distances, rural isolation, low population density, and farming risks limit productivity and growth.
    Keywords: Access to Finance,Microfinance,Labor Policies,Rural Poverty Reduction,E-Business
    Date: 2014–10–01
  9. By: Matthew Groh; David McKenzie
    Keywords: Finance and Financial Sector Development - Microfinance Macroeconomics and Economic Growth - Climate Change Economics Private Sector Development - Emerging Markets Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Finance and Financial Sector Development - Debt Markets
    Date: 2014–10

This nep-mfd issue is ©2014 by Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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