nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒08‒07
three papers chosen by
Olivier Dagnelie
Université de Namur

  1. Dynamic Incentives in Microfinance – What about the Farmers? By Hering, Imke; Musshoff, Oliver
  2. Remittances and economic growth nexus: Do financial development and investment act as transmission channels? An ARDL bounds approach By Najibullah, Syed; Masih, Mansur
  3. Willingness to Pay for Insured Loans in Northern Ghana By Gallenstein, Richard; Mishra, Khushbu; Sam, Abdoul; Miranda, Mario

  1. By: Hering, Imke; Musshoff, Oliver
    Abstract: Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower’s identification with his microlender. This study focuses on relaxation in loan volume rationing in the course of the bank-borrower relationship. More particularly, we consider the differentiation in lending politics faced by farmers and non-farmers and match our findings with the repayment performances of both client groups. By means of a rich data set for the years 2007 until 2013 provided by a MFI in Azerbaijan, we demonstrate that farmers face a higher degree of loan volume rationing but outperform the non-farmers with respect to loan repayments. Moreover, our results reveal that relaxation in loan volume rationing works as a tool for risk management in MFIs. In conclusion, we deduce that MFIs have still not recognized the full business potential of their farming clients.
    Keywords: Microfinance, Risk management, Dynamic incentives, Lending relationships, Azerbaijan, Agricultural Finance, Community/Rural/Urban Development, G21, O16, Q14,
    Date: 2015–05
  2. By: Najibullah, Syed; Masih, Mansur
    Abstract: The study seeks to investigate the causal links between economic growth and remittances through two specific transmission channels, namely financial development and investment. Using Bangladesh as a case study, the study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). Based on a time series data over the period 1977–2013, the findings reveal no long term lead-lag relationship between economic growth and remittances. However, the short term relation exists between remittances and investment. Investment also stimulates economic growth. A unidirectional transmitting channel through investment can be identified in the short run. The financial development was found to be weak in the growth remittances nexus and this shows the presence of a missing link between investment and financial development. This might happen due to financial exclusion and inflow of remittances through informal unaccounted channel. Policy makers should focus on financial sector deepening to promote financial inclusion. Moreover, creating awareness to promote flow of remittances through formal channel should get priority. For the future researchers, the inclusion of microfinance sector as a transmission channel might provide significant findings as the remittances in fact represent the people at the bottom of the pyramid, where microfinance sector has a strong presence unlike the formal financial sector.
    Keywords: remittances, economic growth, ARDL
    JEL: C22 C58 E44
    Date: 2015–07–05
  3. By: Gallenstein, Richard; Mishra, Khushbu; Sam, Abdoul; Miranda, Mario
    Abstract: Index insurance has been heralded as a potential solution to systemic risks faced by smallholder farmers in developing countries by covering risks such as drought, low crop yields, and low market prices. Despite its potential, demand has remained low in many early experiments and field trials. Little research has been done, however, on demand for insurance as it is coupled with other services such as loans. Here, willingness to pay for drought index insurance backed loans is investigated using contingent valuation methodology. Results demonstrate that on average the sample population has a willingness to pay high enough to sustain a market viable insured loan product without subsidization with 56% of the target population expressing a willingness to pay for an insured loan at the market price. Results also show a positive and significant WTP for individual policies and to avoid basis risk resulting from rainfall measurement.
    Keywords: Index Insurance, Willingness to Pay, Micro finance, Agricultural Finance, Demand and Price Analysis, International Development, Risk and Uncertainty,
    Date: 2015

This nep-mfd issue is ©2015 by 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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