nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒07‒25
four papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Business Training Allocation and Credit Scoring: Theory and Evidence from Microcredit in France By Renaud Bourlès; Anastasia Cozarenco; Dominique Henriet; Xavier Joutard
  2. The Importance of Geographic Access for the Impact of Microfinance By Alimukhamedova, Nargiza; Filer, Randall K; Hanousek, Jan
  3. Act Now: Microcredit with Voluntary Contributions and Zero Interest Rate - Evidence from Pakistan By Mahreen Mahmud
  4. Financial Sustainability of Tanzanian Saving and Credit Cooperatives By Nyankomo Marwa and Meshach Aziakpono

  1. By: Renaud Bourlès (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Anastasia Cozarenco (Université Libre de Bruxelles (ULB),SBS-EM, Centre Emile Bernheim and CERMi); Dominique Henriet (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Xavier Joutard (Université Lumière Lyon 2 and GATE Lyon Saint-Etienne)
    Abstract: The microcredit market, where inexperienced micro-borrowers meet experienced microfinance institutions (MFIs), is subject to reversed asymmetric information. Thus, MFIs' choices can shape borrowers' beliefs and their behavior. We analyze how this mechanism may influence microfinance institution decisions to allocate business training. By means of a theoretical model, we show that superior information can lead the MFI not to train (or to train less) riskier borrowers. We then investigate whether this mechanism is empirically relevant, using data from a French MFI. Confirming our theoretical reasoning, we find a non-monotonic relationship between the MFI's decision to train and the risk that micro-borrowers represent.
    Keywords: microcredit, reversed asymmetric information, looking-glass self, bivariate probit, scoring model
    Date: 2015–07
  2. By: Alimukhamedova, Nargiza; Filer, Randall K; Hanousek, Jan
    Abstract: The geographic distance between a household and financial institutions may constitute a significant obstacle to achieving the benefits of modern financial institutions. We measure the impact of improved distance-related access to microcredits in Uzbekistan. Residents living closer to microfinance institutions are propensity score matched to those further away using both household and village characteristics. Households located closer to microfinance institutions have larger businesses in terms of income, profits and employees than similar households located further away. Similarly, they spend more on most forms of consumption and have greater savings.
    Keywords: geographic access; microcredit; microfinance institutions
    JEL: C34 O16
    Date: 2015–07
  3. By: Mahreen Mahmud
    Abstract: We study a unique microcredit model with zero interest rate and voluntary contributions, used by Akhuwat, a microfinance organization operating in Pakistan since 2001. Borrowers are encouraged to give any amount they wish to the organization every month, in addition to the instalment for the repayment of principal. These voluntary contributions result in an implicit interest rate of around 4.5%. The analysis of monthly data on voluntary contributions provide evidence that the organization is rewarding borrowers for their contributions by giving them repeat loans and that borrowers are strategically timing these voluntary contributions through their loan cycle to maximize impact. In the case of joint liability loans, borrowers in poorly performing groups make on average higher voluntary contributions, and voluntary contributions in a previous loan cycle correlate with borrower discipline in a subsequent loan cycle. Thus, voluntary contributions can signal borrower quality, and joint liability borrowers appear to be using them to signal their quality independently of their group.
    Keywords: Microfinance; Voluntary Contributions; Social Capital
    JEL: O12 O16 D64
    Date: 2015–07
  4. By: Nyankomo Marwa and Meshach Aziakpono
    Abstract: This paper examined the profitability and financial sustainability of Saving and Credit Cooperatives (SACCOs) in Tanzania. The data set used in this study came from SACCOs’ audited financial reports for the year 2011. Profitability was estimated using return on assets and financial sustainability was estimated using the ratio of total expenses to total revenue. Linear regression was used to investigate the determinants of financial sustainability. The results show that about 61% of our sample SACCOs are operationally sustainable and 51% of the total sample is both operationally and financially sustainable. The average sustainability score was 127%. On average, our results for profitability (measured by return on assets) are higher than some of the results reported for standard microfinance both in the region and globally. In terms of sustainability our results suggest a promising future for the financial cooperative business model as an alternative form of financing the poor. This study contributes in two ways. First it contributes towards the scanty empirical literature on the performance of saving and credit cooperatives in developing countries and Tanzania in particular. Second, it provides provocative evidences which appear to contradict earlier and more pessimistic accounts on members based microfinance. It challenges the existing ontology about the potential of extending member-based microfinance. We acknowledge that only SACCOs with audited financial statements were included in our study, thus the conclusion is limited to SACCOs with similar characteristics. Future work might consider extending the analysis to include SACCOs with non-audited financial statements.
    Keywords: Saving and Credit Cooperatives, Microfinance, Sustainability, Tanzania
    JEL: G21 G2 D31 D24 I30
    Date: 2015

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