nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒05‒30
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Just a Few Cents Each Day: Can Fixed Regular Deposits Overcome Savings Constraints? By Anett John (née Hofmann)
  2. When Commitment Fails - Evidence from a Regular Saver Product in the Philippines By Anett John (née Hofmann)
  4. Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance By Marc Labie; Carolina Laureti; Ariane Szafarz

  1. By: Anett John (née Hofmann)
    Abstract: Empirical evidence suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. This paper argues that individuals may face even higher negative returns to saving at home due to hyperbolic discounting and claims on savings by relatives. I outline a model that shows why hyperbolic discounters cannot reach their welfare-maximising level of savings, and why a commitment savings product with fixed period contributions can increase their achievable savings level. Using a novel dataset obtained from a small microfinance institution in Bangladesh, the paper then presents some first empirical evidence on the effects of a commitment savings product with fixed regular instalments. I find that the introduction of the regular saver product was associated with an increase in individuals' savings contributions of 180 percent after a periods of five months. The paper concludes that the provision of commitment savings products with fixed contributions may reduce savings constraints and increase individuals' welfare, providing a substitute for costly informal mechanisms. However, since the data originates from a field study with self-selection problems rather than a randomized controlled experiment, further studies are needed to confirm this effect.
    Keywords: commitment savings, hyperbolic discounting, Bangladesh
    JEL: D14 O11 O16
    Date: 2014–03
  2. By: Anett John (née Hofmann)
    Abstract: Recent literature promotes commitment products as a new remedy for overcoming self-control problems and savings constraints. Committing to a welfare-improving contract requires knowledge about one's preferences, including biases and inconsistencies. If agents are imperfectly informed about their preferences, they may choose ill-suited commitment contracts. I designed a regular-instalment commitment savings product, intended to improve on pure withdrawal-restriction products by mimicking the fixed-instalment nature of loan repayment contracts. I conduct a randomised experiment in the Philippines, where individuals from a general low-income population were randomly offered to take up the product. Individuals chose the stakes of the contract (in the form of a default penalty) themselves. The result is that a majority appears to choose a harmful contract: While the intent-to-treat effect on bank savings for individuals assigned to the treatment group is four times that of a withdrawal-restriction product (offered as a control treatment), 55 percent of clients default on their savings contract. The explanation most strongly supported by the data is that the chosen stakes were too low (the commitment was too weak) to overcome clients' self-control problems. Moreover, both take-up and default are negatively predicted by measures of sophisticated hyperbolic discounting, suggesting that those who are fully aware of their bias realise the commitment is too weak for them, and avoid the product. The study suggests that research on new commitment products should carefully consider the risk of adverse welfare effects, particularly for naïve and partially sophisticated hyperbolic discounters.
    Keywords: commitment savings, hyperbolic discounting, partial sophistication, regular instalments, Philippines.
    JEL: D03 D14 O12 O16
    Date: 2014–08
  3. By: Virander Pal Goyal; M. M. Goel
    Abstract: Financing under Self Helf Groups (SHGs) scheme is based on the concept of Microfinance which is a term for the practice of providing financial services such as microcredit, micro savings and micro insurance to the rural poor. As this program is going on for the last many years, the present study has been carried out keeping in view the objectives that what is the impact of Microfinance on living standards, empowerment of women and poverty alleviation in the Kaithal district of Haryana. . It has been found that there has been considerable increase in the income, savings and economic assets of the beneficiaries after joining the scheme. The increase in income and savings has raised the standard of living of the members. It has also resulted in increasing their confidence and has helped in social justice and empowerment of women.Microfinance can be a success story if we adopt healthy practices adopted by Gramin bank of Bangladesh such as five members in SHGs. It is sad to observe that our approach in micro financing is ‘target oriented’ in terms of expenditure allocations which is required to be made ‘result oriented’. There is a scope of monitoring and evaluation by academicians rather than professionals and officials to make it unbiased. To ensure inclusive growth which means including the excluded segments, caring the less cared and using the less used manpower, we need to control corruption, population and inflation. There is a strong case for monitoring and evaluation with good governance (SMART administration), manpower planning and inflation targeting for achieving the better results in making microfinance under SHGs a success story in India. Key words: SHG ,Good Governace as SMART administration
    Date: 2014–09
  4. By: Marc Labie; Carolina Laureti; Ariane Szafarz
    Abstract: The success of both microcredit and micro-savings products rests upon simplicity and standardization in order to stimulate client discipline. Meanwhile, these products lack flexibility. This papers attempts to make sense of behavioral product design in microfinance. We focus on the potential trade-offs between discipline and flexibility. While discipline devices encourage clients make payments duly on time, flexibility improves clients’ day-to-day money management and helps them cope with shocks. Our contribution is twofold. First, we highlight the evidence-based advantages and disadvantages of flexible products in microfinance. Second, we present best-practice examples of flexible products offered by microfinance institutions worldwide.
    Keywords: Microfinance; discipline; flexibility; commitment; incentive
    JEL: D82 D91 G21 O12
    Date: 2015–05–21
  5. By: K. Manitombi Devi
    Abstract: Globalization and economic liberalization with the doctrine of free markets have opened up tremendous opportunities for development and growth and consequent modification in livelihood strategies. In every society women play critical roles in the family and outside. Socio-economic advancement of a country can be judge best by the status and position of women. Women constitute half of the total population in the world Empowerments of women is a critical factor in the eradication of poverty through remunerative and non remunerative work at home, in the community and in the work place. Women in income generating activities is related to increase their status, role and decision making power in the family and in the society. The extension of small loans through Self Help Groups can help in the growth of micro enterprises in any region. Micro finance has evolved as need based policy and programme to cater the needs of neglected groups especially women, poor, rural deprived etc. Microfinance is one of the most effective and flexible strategy to fight against global poverty. Key words: Microfinance, SHGs, Entrepreneurs, NGOs
    Date: 2014–12

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