nep-mfd New Economics Papers
on Microfinance
Issue of 2014‒12‒08
seven papers chosen by
Olivier Dagnelie
Université de Namur

  1. Saving for a (not so) Rainy Day: A Randomized Evaluation of Savings Groups in Mali By Lori Beaman; Dean Karlan; Bram Thuysbaert
  2. How flexible repayment schedules affect credit risk in agricultural microfinance By Weber, Ron; Mußhoff, Oliver; petrick, Martin
  3. The impact of microfinance on factors empowering women: Differences in regional and delivery mechanisms in India’s SHG programme By Bali Swain, Ranjula; Wallentin, Fan Yang
  4. Does team competition increase pro-social lending? Evidence from online microfinance By Chen, Roy; Chen, Yan; Liu, Yang; Mei, Qiaozhu
  5. The Economic Philosophy of Micro-Credit System By Mishra, SK
  6. Islamic Finance in Sub-Saharan Africa: Status and Prospects By E. Gelbard; Mumtaz Hussain; Rodolfo Maino; Yibin Mu; Etienne B. Yehoue
  7. The Effect of Index Insurance on Returns to Farm Inputs: Exploring Alternatives to Zambia's Fertilizer Subsidy Program By Murray, Anthony G; Farrin, Katie

  1. By: Lori Beaman; Dean Karlan; Bram Thuysbaert
    Abstract: High transaction and contracting costs are often thought to create credit and savings market failures in developing countries. The microfinance movement grew largely out of business process innovations and subsidies that reduced these costs. We examine an alternative approach, one that infuses no external capital and introduces no change to formal contracts: an improved "technology" for managing informal, collaborative village-based savings groups. Such groups allow, in theory, for more efficient and lower- cost loans and informal savings, and in practice have been scaled up by international non-profit organizations to millions of members. Individuals save together and then lend the accumulated funds back out to themselves. In a randomized evaluation in Mali, we find improvements in food security, consumption smoothing, and buffer stock savings. Although we do find suggestive evidence of higher agricultural output, we do not find overall higher income or expenditure. We also do not find downstream impacts on health, education, social capital, and female decision-making power. Could this have happened before, without any external intervention? Yes. That is what makes the result striking, that indeed there were no resources provided nor legal institutional changes, yet the NGO-guided, improved informal processes led to important changes for households.
    JEL: D12 D91 O12
    Date: 2014–10
  2. By: Weber, Ron; Mußhoff, Oliver; petrick, Martin
    Abstract: Using a unique dataset of a commercial microfinance institution in Madagascar, this paper investigates how the provision of microfinance loans with (in)flexible repayment schedules affects loan delinquencies of agricultural borrowers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. We develop a theoretical framework and apply and estimate an econometric model for the loan repayment behavior of agricultural micro-borrowers with seasonal and non-seasonal production types. Our results reveal that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, we find that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category.
    Keywords: Agricultural Credit, Borrowing, Financial Risk, Loan Repayment, Microfinance, Seasonality, Agribusiness, Agricultural Finance,
    Date: 2014–04
  3. By: Bali Swain, Ranjula (Department of Economics); Wallentin, Fan Yang (Department of Statistics)
    Abstract: We examine how the impact on women empowerment varies with respect to the location and type of group linkage of the respondent. Using household survey data from five states in India, we correct for selection bias to estimate a structural equation model. Our results reveal that in the southern states of India empowerment of women takes place through economic factors. For the other states, we find a significant correlation between women empowerment and autonomy in women’s decision-making and network, communication and political participation respectively. We do not however find any differential causal impact of different delivery methods (linkage models).
    Keywords: microfinance; women empowerment; structural equation model; self-help groups
    JEL: C31 G21 J16
    Date: 2014–10–31
  4. By: Chen, Roy; Chen, Yan; Liu, Yang; Mei, Qiaozhu
    Abstract: We investigate the effects of team competition on pro-social lending activity on, the first microlending website to match lenders with entrepreneurs in developing countries. Using naturally occurring field data, we find that lenders who join teams contribute 1.2 more loans ($30-$42) per month than those who do not. To further explore factors that differentiate successful teams from dormant ones, we run a large-scale randomized field experiment (n = 22, 233) by posting forum messages. Compared to the control, we find that lenders make significantly more loans when exposed to a goal-setting and coordination message, whereas goal-setting alone significantly increases lending activities of previously inactive teams. Our findings suggest that goal-setting and coordination are effective mechanisms to increase pro-social behavior in teams.
    Keywords: social identity,pro-social lending,microfinance,field experiment
    JEL: C1 C93 D64 H41
    Date: 2014
  5. By: Mishra, SK
    Abstract: This paper aims at locating the practice of micro-credit system into a larger theoretical canvas of economic theory and philosophy. A systems theoretic approach has been adopted. Emergence of the ‘excluded’ class has been explained with the help of the theory of feedback. Individuals have been assumed to be myopic, local optimizer and bounded rational. In this context, the empirical experiences have been viewed and assessed as to their outcomes.
    Keywords: Self-organizing system, Systems theory, Micro-credit, economic philosophy, bounded rationality, local goals, theory of groups
    JEL: B52 G21 O17
    Date: 2014–11–20
  6. By: E. Gelbard; Mumtaz Hussain; Rodolfo Maino; Yibin Mu; Etienne B. Yehoue
    Abstract: Islamic finance is a fast growing activity in world markets. This paper provides a survey on Islamic Finance in SSA. Ongoing activities include Islamic banking, sukuk issuances (to finance infrastructure projects), Takaful (insurance), and microfinance. While not yet significant in most Sub-Saharan countries, several features make Islamic finance instruments relevant to the region, in particular the ability to foster SMEs and micro-credit activtities. As a first step, policy makers could introduce Islamic financing windows within the conventional system and facilitate sukuk issuance to tap foreign investors. The entrance of full-fleged Islamic banks require addressing systemic issues, and adapting the crisis management and resolution frameworks. The IMF can play a role by sharing international experiences and providing advice on supervisory and regulatory frameworks as needed.
    Keywords: Islamic banking;Sub-Saharan Africa;Financial sector;Financial institutions;Insurance;Microfinance;Bonds;Islamic Finance, Islamic Banking, Sub-Saharan Africa
    Date: 2014–08–11
  7. By: Murray, Anthony G; Farrin, Katie
    Abstract: A significant volume of research has investigated input subsidy programs in Africa, where government expenditures on such programs are non-trivial. This paper uses panel data from a sample of farm households in Zambia to compare how fertilizer use decisions change in the presence of a formal insurance market. If returns to fertilizer improve under an insurance regime, the use of index insurance can be an alternative to or complement of existing input subsidy programs in the country. After estimating the cost of a simple zero-one, actuarially fair index insurance product that is mandatory for farmers who purchase fertilizer, we run simulations to explore the effect of insurance on household investment in fertilizer. Results show that index insurance, by reducing the disposable wealth of households in years where no payouts occur, can dampen demand for fertilizer at the farm level.
    Keywords: weather insurance, technology adoption, Food Security and Poverty, International Development, D14, G22, Q12,
    Date: 2014

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