nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒06‒13
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Can community-based microfinance groups match savers with borrowers? Evidence from rural Malawi By Rachel Cassidy; Marcel Fafchamps
  2. Social Capital and the Repayment of Microfinance Group Lending. A Case Study of Pro Mujer Mexico By Luminita Postelnicu; Niels Hermes; Roselia Servin Juarez
  3. Women Leaders and Social Performance: Evidence from Financial Cooperatives in Senegal By Anaïs A Périlleux; Ariane Szafarz
  4. The Role of Subsidy Uncertainty in Mission Drift of Microfinance Institutions of Asia By Muhammad Zubair; Attiya Yasmin Javid
  5. Microfinanzas en el Perú: Solvencia y Rentabilidad en las Cajas Municipales de Ahorro y Crédito By Gambetta Podesta, Renzo

  1. By: Rachel Cassidy; Marcel Fafchamps
    Abstract: This paper examines how members sort across community-based microfinance groups, specifically Village Savings and Loan Associations in rural Malawi. Our central question is to ask whether such groups allow savers (especially commitment savers) to match with potential borrowers, thereby promoting financial intermediation. We analyse novel data in the form of a census of all 3,800 members of 150 VSLA groups. We first develop predictions on sorting in terms of individual members’ occupation and present bias, and then test these predictions in a dyadic regression framework. We find evidence that whilst there is positive assortative matching on occupation, suggesting unrealised intermediation possibilities; there is negative assortative matching on present bias, indicating that these groups do at least create a degree of financial intermediation between commitment savers and borrowers. The latter may be welfare-enhancing for both commitment savers and borrowers, given the low access to commitments savings technologies and to credit in these communities.
    Date: 2015
  2. By: Luminita Postelnicu; Niels Hermes; Roselia Servin Juarez
    Abstract: This paper investigates how social networks of group borrowers come into play in joint liability group lending. We use a large and original dataset containing 802 mapped social networks of borrowers from Pro Mujer Mexico. This is the first paper to look at external ties, i.e. social ties with individuals outside the borrowing group. Our main finding is that group lending with joint liability works when group borrowers use the informal risk insurance arrangement embedded in their external ties as guarantee for loan repayment. The extent to which this informal arrangement is used as guarantee is not decided by the borrower, but it is determined by the configuration of the group borrowers’ social networks, i.e. by their overlapping networks. These overlapping networks (or information channels) facilitate the diffusion of information into each other’s networks, and, thus, increases the credibility of the threat of losing one’s informal risk insurance arrangement in case of default. Our results show that the threat of losing the informal risk insurance arrangement embedded in one’s external ties matters for loan repayment even more than internal ties (i.e. ties between group members).
    Date: 2015–05–27
  3. By: Anaïs A Périlleux; Ariane Szafarz
    Abstract: How do women leaders such as board members and top managers influence the social performance of organizations? This paper addresses the question by exploiting a unique database from a Senegalese network of 36 financial cooperatives. We scrutinize the loan-granting decisions, made jointly by the locally elected board and the top manager assigned by the central union of the network. Our findings are threefold. First, female-dominated boards favor social orientation. Second, female managers tend to align their strategy with local boards' preferences. Third, the central union tends to assign male managers to female-dominated boards, probably to curb the boards’ social orientation.
    Keywords: Gender; Governance; Leadership; Microfinance; Africa; Senegal
    JEL: G20 J54 O16 G34 O55 L31
    Date: 2015–05–27
  4. By: Muhammad Zubair (Pakistan Institute of Development Economics, Islamabad); Attiya Yasmin Javid (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study sheds light on the mission drift arguments for 149 MFIs working in continent Asia over the period 2003 to 2013. The mission drift is captured by average loan size, total number of borrowers and lending rate. The study finds positive and significant relationship of average loan size with average profit and cost. These results indicate that increase in loan size results in increase in cost and this reduces outreach. The result shows that high subsidy uncertainty increases the interest rate and reduces the outreach of MFIs suggesting that subsidy must be less uncertain to avoid mission drift. The study also finds that subsidy uncertainty increases the average loan size, therefore core poor are not served. The implications that emerged fro m findings are that cost efficiency is very important, as cost efficiency increases, loan size becomes small, which ultimately fulfil the promise of maximum outreach to the core poor clients. The findings suggest for subsidy donors and Government need to m ake more clear policies regarding the disbursement timing and amount of subsidy. This will reduce the ambiguity about subsidy in MFIs and let them work more confidently on their mission
    Keywords: Microfinance, Subsidy Uncertainty, Outreach, Mission Drift, Sustainability
    Date: 2015
  5. By: Gambetta Podesta, Renzo
    Abstract: This Report use a resampling based on Monte Carlo simulation techniques to calculate distribution for the losses observed in the loans portfolios during 2013 and 2014 for each of the Municipal Savings and Credit Loan Banks in Peru. With these results two key variables are analyzed; regulatory capital ratios are compared with the unexpected losses to verify levels of solvency and the income statements are used to achieve a differently measure of the commons accountant financial profitability ratios for better allocation to the adjusted returns of credit risk of each institution. The analysis was conducted with information from RCD (Reporte Crediticio de Deudores), regulatory report submitted for the SBS (Superintendencia de Banca y Seguros) where we can find detailed information for each debtor like debt amount granted by the financial system, delinquency indicators, guarantees, credit provisions, among others. Distributions of losses are computed repeatedly through the nonparametric bootstrap resampling method from the original population to calculate the desired statistics after each iteration. The results show that the simple profitability ratios differ from those calculated in the simulation because they would not take into account the real risks they face to achieve such returns. In terms of solvency the result is mixed, the regulatory capital requirement for credit risk in some Cajas would be underestimated even they would not be covering the legal minimum.
    Keywords: RARORAC, Credit Risk, Expected Shortfall, Montecarlo Simulation,Expected losses, Unexpected losses,Microfinances
    JEL: C14 C15 G21
    Date: 2015–03

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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