nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒04‒25
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Total Factor Productivity of Indian Microfinance Institutions By Bibek Ray Chaudhuri; Shubhasree Bhadra
  2. Agent-based mapping of credit risk for sustainable microfinance By Joung-Hun Lee; Marko Jusup; Boris Podobnik; Yoh Iwasa

  1. By: Bibek Ray Chaudhuri (Indian Institute of Foreign Trade, Kolkata, India); Shubhasree Bhadra (Department of Business Management, University of Calcutta)
    Abstract: The present study attempts to empirically examine the total factor productivity change (TFPG) of Indian microfinance institutions, using balanced panel data set of 55 MFIs in India between 2008 and 2010. A non parametric Malmquist Productivity Index has been used for this purpose. Efficiency of Indian MFIs has been calculated based on production approach. It was found that technological change has played a significant role in increase of TFPG in the terminal year considered. Further, significant change of scale efficiency in terms of women borrowers also enhances TFPG. Moreover, it was found that operational self sufficiency, return on asset and lagged capital-asset ratio, are significant determinants of TFPG. PAR>30 was also found to be positively related to TFPG.
    Keywords: Productivity change, efficiency, microfinance institution, index number
    JEL: D24 G21 C43
    Date: 2015–02
  2. By: Joung-Hun Lee; Marko Jusup; Boris Podobnik; Yoh Iwasa
    Abstract: Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the sustainability of lenders outreaching to the poor. Specifically, using the elements of network theory, we constructed an agent-based model that obeys the stylised rules of microfinance industry. We found that in a deteriorating economic environment confounded with adverse selection, a form of latent moral hazard may cause a regime shift from a high to a low loan repayment probability. An after-the-fact recovery, when possible, required the economic environment to improve beyond that which led to the shift in the first place. These findings suggest a small set of measurable quantities for mapping microfinance credit risk and, consequently, for balancing the requirements to reasonably price loans and to operate on a fully self-financed basis. We illustrate how the proposed mapping works using a 10-year monthly data set from one of the best-known microfinance representatives, Grameen Bank in Bangladesh. Finally, we discuss an entirely new perspective for managing microfinance credit risk based on enticing spontaneous cooperation by building social capital.
    Date: 2015–04

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