nep-mfd New Economics Papers
on Microfinance
Issue of 2014‒12‒29
ten papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Group Lending Without Joint Liability By Thiemo Fetzer; Maitreesh Ghatak; Jonathan de Quidt
  2. Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India By Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
  3. Financial Education and Access to Savings Accounts: Complements or Substitutes? Evidence from Ugandan Youth Clubs By Jamison, Julian C.; Karlan, Dean S.; Zinman, Jonathan
  4. Entrepreneurial Saving Practices and Reinvestment : Theory and Evidence By Beck, T.H.L.; Pamuk, H.; Uras, R.B.
  5. Do Interventions Change the Network? A Panel Peer-Effect Model Accounting for Endogenous Network Changes By Comola, Margherita; Prina, Silvia
  6. What Explains Microfinance Distribution Surplus? A Stakeholder-oriented Approach By Marek Hudon; Anaïs Périlleux
  7. Impact Assessment of Self Help Group towards Rural Development: A Case Study of Jharkhand, India By Parwez, Sazzad
  8. Factors that explain the regional expansion of microfinance institutions in Peru By Annabel Vanroose
  9. Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt By McKenzie, David
  10. Living with the Merapi Volcano: Risks and Disaster Microinsurance By Aloysius G. Brata; Piet Rietveld; Henri L.F. de Groot; Budy P. Resosudarmo; Wouter Zant

  1. By: Thiemo Fetzer; Maitreesh Ghatak; Jonathan de Quidt
    Abstract: This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending by some microfinance institutions First we show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how a purely mechanical argument in favor of the use of groups - namely lower transaction costs - may actually be used explicitly by lenders to encourage the creation of social capital. We also carry out some simulations to evaluate quantitatively the welfare impact of alternative forms of lending, and how they relate to social capital.
    Keywords: microfinance, group lending, joint liability, mutual insurance
    JEL: G11 G21 O12 O16
    Date: 2013–07
  2. By: Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
    Abstract: Recent evaluations of traditional microfinance loans have found no significant impacts on borrower incomes or productive activities. We examine whether this can be remedied by (a) modifying loan features to facilitate financing of working capital needs of farmers, and (b) delegating selection of borrowers for individual liability loans to local trader-lender agents incentivized by repayment-based commissions. We conduct a field experiment in West Bengal where this design (called TRAIL) was offered in randomly selected villages. In remaining villages a more traditional design (called GBL) was offered, wherein five-member groups applied for joint liability loans with terms otherwise similar to TRAIL loans. TRAIL loans increased cultivation of potatoes (the major cash crop in the region) and farm incomes by 17–21%, whereas GBL loans had insignificant and highly dispersed effects. We argue this was because TRAIL agents selected borrowers that were low-risk and highly productive, whereas the GBL scheme attracted farmers that were riskier on average and highly heterogeneous in terms of productivity. TRAIL loans also achieved higher repayment and take-up rates, and lower administrative costs.
    JEL: O16 O17 Q14
    Date: 2014–11
  3. By: Jamison, Julian C.; Karlan, Dean S.; Zinman, Jonathan
    Abstract: Evidence on the effectiveness of financial education and formal savings account access is lacking, particularly for youth. We randomly assign 250 youth clubs to receive either financial education, access to a cheap group account, or both. The financial education treatments increase financial literacy; the account-only treatment does not. Administrative data shows the education plus account treatment increases bank savings relative to account-only. But survey-measured total savings shows roughly equal increases across all treatment arms. Earned income also increases in all treatment arms. We find little evidence that education and account access are strong complements, and some evidence they are substitutes.
    Keywords: financial access; financial education; financial literacy; microsaving; savings; youth savings
    JEL: D12 D91 O12
    Date: 2014–05
  4. By: Beck, T.H.L. (Tilburg University, Center For Economic Research); Pamuk, H. (Tilburg University, Center For Economic Research); Uras, R.B. (Tilburg University, Center For Economic Research)
    Abstract: We use a novel enterprise survey from Tanzania to gauge the relationship between saving instruments and entrepreneurial reinvestment. While most informal savings practices do not imply a lower likelihood of entrepreneurial reinvestment when compared with formal savings practices, we find a significantly negative effect of saving within the household on the likelihood of reinvesting entrepreneurial profits. Our results are robust to an extensive list of robustness checks, including controlling for reverse causation and omitted variable biases. Our work contributes to the recent debate on the implications of different saving instruments in developing countries and expands the entrepreneurial financing constraints literature by focusing on internal rather than external fundings constraints.
    Keywords: Entrepreneurial finance; savings; reinvestment; financial inclusion
    JEL: D14 G21 O12 O16
    Date: 2014
  5. By: Comola, Margherita (Paris School of Economics); Prina, Silvia (Case Western Reserve University)
    Abstract: A large literature has studied how peers affect behavior by exploiting the preexisting social network structure only. What if networks rewire in response to changes in the economic environment, such as a randomized intervention? We exploit a unique panel dataset that contains detailed information on the network of informal financial transactions before and after a field experiment that randomized access to savings accounts in Nepal. First, we show that the intervention affects the structure of the network of informal financial transactions among households. Second, we estimate a panel model of peer effects in expenditure where the network may change endogenously, and we exploit the design of the randomized intervention to instrument for the observed network change. Our results suggest that disregarding the network change would underestimate both total peer effects and the overall impact of the intervention.
    Keywords: networks, peer effects, financial access
    JEL: C31 D85 G2 O16
    Date: 2014–11
  6. By: Marek Hudon; Anaïs Périlleux
    Date: 2014–05–01
  7. By: Parwez, Sazzad
    Abstract: This article is based on primary and secondary information and talks about the premise that poverty has developed social system and subsystems of its own for exploitation poor and especially women in Jharkhand. The context for this paper also derives from the current overriding emphasis on microfinance in rural finance discourse and its celebration as the new ‘magic wand’ in the fight against poverty. The methodology of the present study relied on primary data, books, the web-based research, review of print literature and visit to the selected sites to witness SHGs and microfinance status in India. The paper concludes that SHGs plays very important role in development livelihood and community.
    Keywords: Microfinance, Self Help Group, Livelihood, Poverty Alleviation, Microfinance Institutions, Rural Finance
    JEL: G21 G23
    Date: 2013–05–17
  8. By: Annabel Vanroose
    Abstract: This paper analyzes the location decisions and geographical expansion of microfinance institutions across Peru. To this end, econometric analyses are performed on a self-constructed dataset that covers MFI presence and expansion in the 1832 districts of Peru, and this for 39 MFIs and 13 commercial banks over the period 2001-2008. The paper shows that Peruvian MFIs have expanded considerably during the last decade. MFIs especially increase access in districts with higher levels of development and therefore seem to follow principally a commercial logic. Districts with banks have also a higher probability of an MFI opening.
    Date: 2014–12–15
  9. By: 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. We conduct a randomized experiment 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 they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what they profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to them to help cope with shocks when they do occur, but we are unable to examine this dimension as our insurance product did not pay out over the course of the pilot.
    Keywords: Egypt; insurance; microenterprises; political instability; risk; uncertainty
    JEL: C93 D22 G22 O12 O16
    Date: 2014–10
  10. By: Aloysius G. Brata; Piet Rietveld; Henri L.F. de Groot; Budy P. Resosudarmo; Wouter Zant
    Abstract: This paper investigates the influence of perception of natural disaster risks on the probability of local people to participate in a hypothetical disaster microinsurance. We use household data for a specific disaster risk of the Mount Merapi in Java. We find that respondent's perception of natural disaster risk is in line with experts' risk assessment. Estimation results show that this perception positively influences the interest to participate in disaster microinsurance. We also find that insurance literacy has a strong positive relationship with the respondent's interest to participate in disaster microinsurance.
    Keywords: perception of risks, eruptions, microinsurance, Merapi
    JEL: Q54 G21 D12
    Date: 2014

This nep-mfd issue is ©2014 by Aastha Pudasainee and 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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