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on Microfinance |
| By: | Crépon, Bruno; Devoto, Florencia; Duflo, Esther; Parienté, William |
| Abstract: | This paper reports the results from a randomized evaluation of a microcredit program introduced in rural areas of Morocco starting in 2006 by Al Amana, the country’s largest microfinance institution. Al Amana was the only MFI operating in the study areas during the evaluation period. Thirteen percent of the households in treatment villages took a loan, and none in control villages. Among households identified as more likely to borrow based on ex-ante characteristics, microcredit access led to a significant rise in investment in assets used for self-employment activities (mainly animal husbandry and agriculture), and an increase in profit. But this increase in profit was offset by a reduction in income from casual labor, so overall there was no gain in measured income or consumption. We find suggestive evidence that these results are mainly driven by effects on borrowers, rather than by externalities on households that do not borrow. This implies that among those who chose to borrow, microcredit had large, albeit very heterogeneous, impacts on assets and profits from self-employment activities, but small impact on consumption: we can reject an increase in consumption of more than 10% among borrowers, two years after initial rollout. |
| Keywords: | Microcredit; Microfinance |
| JEL: | D21 G21 O16 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9984&r=mfd |
| By: | Banerjee, Abhijit; Duflo, Esther; Hornbeck, Richard |
| Abstract: | We investigate the puzzle of microfinance: that loans generate large measured returns for businesses, yet loan take-up is low and the businesses often close. We analyze a randomized trial that bundled microfinance loans with a cheap health insurance policy. Requiring clients to purchase insurance substantially lowered loan renewal. The insurance was useless, due to administrative failures, but reduced loan renewal negatively impacted clients’ businesses. Clients' decision to incur substantial business losses, rather than pay modest insurance premiums, implies the substantial financial gains from microfinance loans are dissipated by unmeasured costs and provide little net value to microfinance clients. |
| Keywords: | development; health insurance; microcredit; microenterprises; microfinance; revealed preference; welfare |
| JEL: | O12 O16 O19 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10146&r=mfd |
| By: | Beaman, Lori; Karlan, Dean S.; Thuysbaert, Bram |
| 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. |
| Keywords: | micro-savings; savings groups impact |
| JEL: | D12 D91 O12 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10206&r=mfd |
| By: | Beaman, Lori; Karlan, Dean S.; Thuysbaert, Bram; Udry, Christopher |
| 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: | agriculture; credit markets; returns to capital |
| JEL: | D21 D92 O12 O16 Q12 Q14 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10103&r=mfd |
| By: | Takahashi, Kazushi; Shonchoy, Abu S.; Ito, Seiro; Kurosaki, Takashi |
| Abstract: | Despite the professed claims of microcredit alleviating poverty, little is known about what kind of credit contract is suitable for extremely poor households, also called the ultra-poor. To fill this knowledge gap, we initiated a field experiment in the river islands of northern Bangladesh, where a substantial portion of dwellers could be categorized as ultra-poor due to cyclic floods. We randomly offered four types of loans to such dwellers: regular small cash loans with one-year maturity, large cash loans with three-year maturity both with and without a one-year grace period, and in-kind livestock loans with three-year maturity and a one-year grace period. We compared uptake rates as well as the determinants of uptake and found that the uptake rate is the lowest for the regular contract, followed by the in-kind contract. Contrary to prior belief, we also found that the microcredit demand by the ultra-poor is not necessarily small, and in particular the ultra-poor are significantly more likely to join a microcredit program than the moderately poor if a grace period with longer maturity is attached to a large amount of credit, irrespective of whether the credit is provided in cash or in kind. This paper provides evidence that a typical microcredit contract with one-year maturity and without a grace period is not attractive to the ultra-poor. Microfinance institutions may need to design better credit contracts to address the poor's needs. |
| Keywords: | Bangladesh, Microfinance, Poverty, Microcredit, Uptake, Ultra-poor, Program design |
| JEL: | D12 G21 O12 O16 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper483&r=mfd |
| By: | Fink, Günther (Harvard School of Public Health); Jack, Kelsey (Tufts University); Masiye, Felix (University of Zambia) |
| Abstract: | Small-scale farming remains the primary source of income for a majority of the population in developing countries. While most farmers primarily work on their own fields, off-farm labor is common among small-scale farmers. A growing literature suggests that off-farm labor is not the result of optimal labor allocation, but is instead driven by households' inability to cover short-term consumption needs with savings or credit. We conduct a field experiment in rural Zambia to investigate the relationship between credit availability and rural labor supply. We find that providing households with access to credit during the growing season substantially alters the allocation of household labor, with households in villages randomly selected for a loan program selling on average 25 percent less off-farm labor. We also find that increased credit availability is associated with higher consumption and increases in local farming wages. Our results suggest that a substantial fraction of rural labor supply is driven by short-term constraints, and that access to credit markets may improve the efficiency of labor allocation overall. |
| Keywords: | agriculture, credit, seasonality, income smoothing |
| JEL: | J43 O13 O16 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8657&r=mfd |
| By: | Michael Callen; Suresh De Mel; Craig McIntosh; Christopher Woodruff |
| Abstract: | When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. In this context, the headwaters of formal savings are to be found in sacrificed leisure time: households work more, and work more on the wage market when savings options improve. These results suggest that the labor allocation channel is an important mechanism linking savings opportunities to income. |
| JEL: | D14 G21 O16 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20736&r=mfd |
| By: | Simplice Anutechia Asongu (Association of African Young Economists) |
| 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: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:aay:wpaper:14_018&r=mfd |