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on Microfinance |
| By: | Abhijit Banerjee; Esther Duflo; Richard Hornbeck |
| Abstract: | We analyze a randomized trial in which microfinance loans were bundled with an unpopular (but cheap) health insurance policy. In randomly assigned treatment villages, purchase of the insurance policy was made mandatory at the time of loan renewal. This requirement led to a 22 percentage point (or 31%) decline in loan renewal in treatment villages, compared to control villages where the insurance policy was not introduced. The insurance policy itself turned out to be useless, partly due to administrative failures in implementation. Therefore, non-renewing clients' valuation of microfinance is approximated by the modest fee to purchase the insurance; in the presence of any expected gains, the fee represents an upper bound. Comparing client businesses in treatment and control villages, however, the decline in loan renewal had negative impacts that were both economically substantial and statistically significant. Clients' decision to incur these losses, rather than pay the modest insurance premium, implies the substantial financial gains from microfinance are mostly dissipated by unmeasured costs of operating the small businesses. This result potentially reconciles the seemingly large returns to capital for microenterprises with the lack of growth and frequent business closure. |
| JEL: | O12 O16 O19 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20477&r=mfd |
| By: | Marcela Eslava; Alessandro Maffioli; Marcela Meléndez |
| Abstract: | Whether public lending to firms effectively eases credit constraints has been widely studied for very small businesses. The evidence documented for larger firms refers to lending that is significantly subsidized and targeted to these businesses, so the estimated positive effects may reflect poor allocation of public credit. This paper investigates the impact on its beneficiaries of a wide, untargeted and unsubsidized, lending program in Colombia. We use data on all non-micro manufacturing firms and all formal credit operations. After correcting for potential selection biases using econometric techniques, we find that Bancóldex loans increase firms’ employment, purchases of inputs, investment, and output for small (but non-micro) firms, while large firms experience increases in variable inputs, but not on investment. While both short-term and long-term Bancóldex loans are found to have positive impacts on output, input demand and employment, only long-term loans increase investment. Moreover, short-term loans have a larger impact on input demand than long-term loans. Our findings also indicate that Bancóldex’ beneficiaries end up with improved overall credit conditions after receiving Bancóldex credit: the amount of credit received goes up, the duration of the loans increases, and beneficiaries are able to establish credit relationships with more financial intermediaries. Though the interest rates go down, in this dimension the effect is small. |
| Keywords: | Credit constraints, public development banks, firm growth |
| JEL: | G28 H43 L25 O12 O54 |
| Date: | 2014–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:012277&r=mfd |
| By: | Buvinic, Mayra; Furst-Nichols, Rebecca |
| Abstract: | A review of rigorous evaluations of interventions that seek to empower women economically shows that the same class of interventions has significantly different outcomes depending on the client. Capital alone, as a small cash loan or grant, is not sufficient to grow women-owned subsistence-level firms. However, it can work if it is delivered in-kind to more successful women microentrepreneurs, and it should boost the performance of women's larger-sized SMEs. Very poor women need a more intensive package of services than do less poor women to break out of subsistence production and grow their businesses. What works for young women does not necessarily work for adult women. Skills training, job search assistance, internships, and wage subsidies increase the employment levels of adult women but do not raise wages. However, similar interventions increase young women's employability and earnings if social restrictions are not binding. Women who run subsistence-level firms face additional social constraints when compared to similar men, thus explaining the differences in the outcomes of some loans, grants, and training interventions that favor men. Social constraints may also play a role in explaining women's outcome gains that are short-lasting or emerge with a delay. The good news is that many of the additional constraints that women face can be overcome by simple, inexpensive adjustments in program design that lessen family and social pressures. These include providing capital in-kind or transacted through the privacy of a mobile phone and providing secure savings accounts to nudge women to keep the money in the business rather than to divert it to non-business uses. |
| Keywords: | Financial Literacy,Primary Education,Gender and Development,Banks&Banking Reform,Labor Policies |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7087&r=mfd |
| By: | Toth, Russell; Barrett, Christopher B.; Bernstein, Richard; Clark, Patrick; Gomes, Carla; Mohamed, Shibia; Mude, Andrew; Taddesse, Birhanu |
| Abstract: | Does the provision of livestock insurance raise the unintended consequence of stimulating excessive herd accumulation and less environmentally-sustainable herd movement patterns? The impact of insurance is theoretically ambiguous: if precautionary savings motives for holding livestock assets dominate, then we would expect to see households that receive index insurance reduce herd sizes and move less intensively. However if risk-adjusted investment motives dominate then we would expect them to build herds and move more. “Behavioural” or norm-based responses are also possible. To test between these theoretical possibilities we use the randomized provision of livestock insurance paired with novel, high frequency data collection. The results suggest that in the presence of insurance pastoralists accumulate larger herds, and move more intensively. This has implications for the potential ecological impacts scaling up of index insurance programs on the pastoralist rangelands, and for microinsurance and pastoralism more broadly. |
| Keywords: | East Africa, index-based livestock insurance, mobility, pastoralism, Community/Rural/Urban Development, Environmental Economics and Policy, Food Security and Poverty, International Development, Livestock Production/Industries, |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:172441&r=mfd |
| By: | Hirfrfot, Kibrom; Barrett, Christopher B.; Lentz, Erin; Taddesse, Birhanu |
| Abstract: | In this paper we estimate the effects of an imperfect insurance coverage on subjective well-being of a poor, rural population, by exploring whether insurance in force improves subjective well-being and whether insurance that lapsed but did not pay out leads to ex post buyer’s remorse. Exploiting randomization of incentives to purchase a newly introduced index-based livestock insurance product, we establish that even a product that did not pay out generates significant gains in well-being, on average, and that the result is robust to a host of alternative estimation approaches. We also establish that those who purchase insurance that does not pay out experience buyer’s remorse, although the magnitude of this effect is considerably smaller than that of possessing insurance, so that even an agent who can reasonably anticipate subsequent buyer’s remorse in the event that no indemnity is triggered will find it rational to purchase the product. |
| Keywords: | Ethiopia, index insurance, pastoralists, subjective well-being, vignettes, Institutional and Behavioral Economics, International Development, Risk and Uncertainty, D60, I32, O16, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:173478&r=mfd |