nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒02‒05
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Group lending without joint liability By Thiemo Fetzer; Jonathan de Quidt; Maitreesh Ghatak

  1. By: Thiemo Fetzer; Jonathan de Quidt; Maitreesh Ghatak
    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: J1
    Date: 2013–07
  2. By: Shirazi, Nasim Shah (The Islamic Research and Teaching Institute (IRTI))
    Abstract: An attempt has been made to quantify the targeting of the microfinance and its economic impact on the borrowers. The study has employed the Difference of the Difference Approach to find the net effect of microfinance by employing data collected by Pakistan Poverty Alleviation Fund. The study found that about 30 percent of the borrowers were poor, while 70 percent of the borrowers were non-poor. The impact on the poverty status was found to be marginal. The income of the poor borrowers hardly could grow by 2 percent during the study period. However, the consumption of the poor borrowers increased by 10 percent, which indicates that poor primarily borrow for smoothing their consumption. A significant net effect of microfinance on the consumption (6.71 percent) and income ( about 6 percent) of non-poor borrowers has been found. Results show that poor nonborrowers were better off in terms of change in most of their assets compared to the poor borrowers. However, the net effect of microfinance on households durables of the non-poor borrowers was marginal’ while the net effect of microfinance on few household durable items like fan, bicycle and sewing machine , of the poor borrowers was found to be positive. Compared to the poor borrowers, the majority of the poor non-borrowers reported no change in their livestock. Similarly, some poor borrowers reported positive changes in their livestock as compared to poor non borrowers during the study period, which shows positive net impact of microcredit on the livestock of the poor borrowers. Expenditures on social and other miscellaneous items were found to be very small.
    Keywords: Microfinance; targeting of microfinance; Pakistan Poverty Alleviation Fund; Socio-economic Impact; Microfinance and the poor
    Date: 2015–01–20

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