nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒03‒13
four papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Rural finance and agricultural technology adoption in Ethiopia: Does institutional design matter?: By Abate, Gashaw Tadesse; Rashid, Shahidur; Borzaga, Carlos; Getnet, Kindie
  2. Within-group heterogeneity and group dynamics: Analyzing exit of microcredit groups in Angola By Ivar Kolstad; Armando J. Garcia Pires; Arne Wiig
  3. The Determinants of Interest Rates in Microbanks: Age and Scale By Jacinta C. Nwachukwu; Simplice Asongu
  4. Risk preference or financial literacy? Behavioural experiment on index insurance demand By Awel Y.; Azomahou T.T.

  1. By: Abate, Gashaw Tadesse; Rashid, Shahidur; Borzaga, Carlos; Getnet, Kindie
    Abstract: Financial cooperatives and microfinance institutions (MFIs) are the two major sources of rural finance in Ethiopia. Whereas MFIs are relatively new, financial cooperatives have existed for centuries in various forms. The coexistence of two different institutions serving the same group of people, and delivering the same financial services, raises several policy questions. Those questions have become particularly relevant, as the government has embarked on developing a new strategy for improving rural financial services delivery. This study is expected to serve as an input to that policy discussion. Using a unique household survey dataset and the propensity-score-matching technique, we examine the impacts of the two financial service providers on agricultural technology adoption. The results suggest that access to institutional finance has significant positive impacts on both the adoption and extent of technology use.
    Keywords: Finance, Agricultural technologies, technology adoption, Rural finance, Microfinance, rural areas, propensity score matching, impact analysis,
  2. By: Ivar Kolstad; Armando J. Garcia Pires; Arne Wiig
    Abstract: The effect of within-group heterogeneity on the survival of social groups is theoretically ambiguous. A greater diversity of ideas, experience, and networks can have a positive effect on members’ benefits from group membership, but diversity also creates a potential for conflict. This paper presents an analysis of the exit of microcredit groups, using data from Angola. The results suggest that group fragmentation in terms of social identities, or more specifically religious fractionalization, is associated with a greater probability of group exit. Results for within-group economic inequality suggest, however, that inequality is associated with a decrease in the probability of exit, but at a diminishing rate.
    Keywords: Group dynamics, microcredit, fractionalization, inequality, exit
    Date: 2015
  3. By: Jacinta C. Nwachukwu (University of Huddersfield, UK); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: This study investigates the legitimacy of the relatively high interest rates charged by those microfinance institutions (MFIs) which have been transformed into regulated commercial banks using information garnered from a panel of 1232 MFIs from 107 developing countries. Results show that formally regulated micro banks have significantly higher average portfolio yields than their unregulated counterparts. By contrast, large-scale MFIs with more than eight years of experience have succeeded in lowering interest rates, but only up to a certain cut-off point. The implication is that policies which help nascent small-scale MFIs to overcome their cost disadvantages form a more effective pricing strategy than do initiatives to transform them into regulated institutions.
    Keywords: Microfinance, microbanks, non-bank financial institutions, interest rates, age, economies of scale, developing countries
    JEL: G21 G23 G28 E43 N20
    Date: 2015–02
  4. By: Awel Y.; Azomahou T.T. (UNU-MERIT)
    Abstract: We use unique cross-sectional household data from Ethiopia to investigate the effect of risk preference, financial literacy and other socio-economic characteristics on demand for index insurance. We measure risk preference based on survey experiments using lottery choice game with real monetary prizes. First, we find no evidence of risk aversion on demand for index insurance. Second, we find positive impact of financial literacy on purchasing insurance. Third, relaxing liquidity constraint enhance the take-up of insurance. Finally, demographic and village characteristics have little role in the decision to uptake insurance. These findings have implications on product design and marketing strategies. The product design should focus on ways that better account for liquidity constraint of the household. Interventions that strengthen efforts in provision of financial literacy programmes are worthy. Our results are robust to changes in specification and estimation method.
    Date: 2015

This nep-mfd issue is ©2015 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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