nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒07‒04
four papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. The Returns to Microenterprise Support Among the Ultra-Poor: A Field Experiment in Post-War Uganda By Christopher Blattman; Eric P. Green; Julian C. Jamison; M. Christian Lehmann; Jeannie Annan
  2. Microfinance Institutions and Banks in Europe: The story to date By Anastasia Cozarenco
  3. Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity By Nawaz, Ahmad; Iqbal, Sana
  4. Financial Performance And Corporate Governance In Microfinance: Who Drives Who? An Evidence From Asia. By Nawaz, Ahmad; Iqbal, Sana

  1. By: Christopher Blattman; Eric P. Green; Julian C. Jamison; M. Christian Lehmann; Jeannie Annan
    Abstract: We show that extremely poor, war-affected women in northern Uganda have high returns to a package of $150 cash, five days of business skills training, and ongoing supervision. 16 months after grants, participants doubled their microenterprise ownership and incomes, mainly from petty trading. We also show these ultrapoor have too little social capital, but that group bonds, informal insurance, and cooperative activities could be induced and had positive returns. When the control group received cash and training 20 months later, we varied supervision, which represented half of the program costs. A year later, supervision increased business survival but not consumption.
    JEL: C93 D13 J24 O12
    Date: 2015–06
  2. By: Anastasia Cozarenco
    Abstract: There is a large variety of MFI-bank partnerships in Europe. They are shaped by legislative and economical national contexts. MFIs generally have more than one partnership, in some cases with a consortium of banks. In most European countries, MFIs and banks are not in direct competition. They serve different segments of the market and provide complementary services. Collaboration benefits all parties. For MFIs, partnerships ease access to funding and cost reducing technologies. They contribute to the expansion of MFI lending activities and improve their financial performance. Banks benefit from a better image through corporate social responsibility. Microfinance facilitates the construction of a pool of prospective, profitable clients. Additionally, collaboration creates cross-selling opportunities for banks. Entering the microfinance market is in some cases risk free for banks. Clients have the advantage of proximity when the provision of microfinance takes place through bank branches. Borrowing from/through an MFI in cooperation with a mainstream bank represents the first step toward financial inclusion. Additionally, the services provided by MFIs are tailored to better address the needs of micro-borrowers. Regulatory constraints are not necessarily perceived as impediments by MFIs. Nevertheless, MFIs need to benefit from more autonomy to successfully comply with their social mission. The main challenge for MFIs involved in partnerships with banks is to make sure that the objectives of banks and MFIs are aligned to avoid the risk of the mission drift. Cooperation can be improved through long term commitments, the creation of multi-bank partnerships models, larger decision power given to MFIs, decreased complexity of the partnerships, increased awareness of banks about microfinance and standardisation of methods and criteria employed. MFIs in Europe diversify their funding sources using funding opportunities available from the European Union or using innovative alternative partnerships with crowdfunding and peer to peer platforms. They moreover collaborate with microinsurance companies, and to a smaller extent, mobile banking and transfer companies.
    Date: 2015–06–29
  3. By: Nawaz, Ahmad; Iqbal, Sana
    Abstract: Microfinance institutions of Asia work exclusively with the mission of social welfare hence play an important role in the economic and financial development of a region.Endogeneity poses a serious threat to the authenticity of corporate governance and performance studies because of the endogenous nature of many governance and performance variables. This paper addresses this issue in the context of microfinance sector in Asia by answering the question whether social performance determines the corporate governance mechanism of MFIs. Using a panel of 173 MFIs in 18 Asian countries for the period of five years, a comprehensive corporate governance index (CGI)based on of seven internal governance mechanism variables in constructed as an indicator of the overall corporate governance mechanism of MFIs. By employing GLS model, our results indicate insignificant impact of corporate governance on many social performance variables which are attributed to the endogenous nature of this relationship as the significance of results improved by studying relationship in reverse direction by employing ordered logit model. Our results indicate that social performance is an important determinant of corporate governance mechanism of MFIs even after controlling for MFI related characteristics.
    Keywords: Microfinance; Corporate Governance; Social performance; Endogeneity; Asia
    JEL: G21 G30 M14
    Date: 2015–02–08
  4. By: Nawaz, Ahmad; Iqbal, Sana
    Abstract: This paper models the two-way relationship between corporate governance and financial performance of microfinance institutions of Asia. Unlike previous studies, the phenomena of better corporate governance mechanisms present in more financially oriented microfinance institutions is worth investigating. Using a panel of 173 microfinance institutions in 18 Asian countries between 2007 and 2011, a comprehensive corporate governance index (CGI) based on seven corporate governance variables is being constructed as a proxy for the overall corporate governance mechanism of MFIs. Our results suggest that corporate governance has no significant impact on financial stability of MFIs of Asia. However, financial performance to some extent does drives corporate governance mechanisms in MFIs after controlling for MFI related characteristics. We find greater operating expenses and higher portfolio yield to be associated with improved governance practices in microfinance institutions. Study opens new avenues of research in corporate governance and financial performance literature for the academia. Given the revealing results of financial performance as a determinant of better corporate governance practices, policy makers and regulators in Asia should devise corporate governance policies and guidelines in a way not undermining the financial objectives of microfinance.
    Keywords: Microfinance; Corporate Governance; Financial Performance; Endogeneity; Asia
    JEL: G21 G3
    Date: 2015–06–01

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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