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on Microfinance |
| By: | Karlan, Dean (Yale University and Abdul Latif Jameel Poverty Action Lab); Ratan, Aishwarya Lakshmi (Yale University and Innovations for Poverty Action); Zinman, Jonathan (Dartmouth College and Innovations for Poverty Action) |
| Abstract: | The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and limited functionality. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving can have important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints, and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice. |
| JEL: | D12 D91 G21 O16 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:118&r=all |
| By: | Casini,Paolo; Vandewalle,Lore; Wahhaj,Zaki |
| Abstract: | Self-help groups (SHGs) are the most common form of microfinance in India. The authors provide evidence that SHGs, composed of women only, undertake collective actions for the provision of public goods within village communities. Using a theoretical model, this paper shows that an elected official, whose aim is to maximize re-election chances, exerts higher effort in providing public goods when private citizens undertake collective action and coordinate their voluntary contributions towards the same goods. This effect occurs although government and private contributions are assumed to be substitutes in the technology of providing public goods. Using first-hand data on SHGs in India, the paper tests the prediction of the model and shows that, in response to collective action by SHGs, local authorities tackle a larger variety of public issues, and are more likely to tackle issues of interest to SHGs. The findings highlight how the social behavior of SHGs can influence the governance of rural Indian communities. |
| Keywords: | Economic Theory&Research,Corporate Law,Debt Markets,Civil Society,Political Economy |
| Date: | 2015–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7397&r=all |
| By: | Luminita Postelnicu; Niels Hermes |
| Abstract: | This paper investigates the relationship between the extent to which informal institutions are developed at the country-level and the financial and social performance of MFIs, using data from institutions active in 100 countries. Based on the theoretical literature discussing the economic role of informal institutions such as trust, beliefs, norms and values we hypothesize that microfinance is more successful, both in terms of their financial and social aims, in countries with stronger informal institutions. We test this hypothesis using various direct and indirect measures of informal institutions and link them to measures of financial and social performance of MFIs. Our empirical results are generally supportive to our hypothesis. |
| Keywords: | Microfinance; social capital; trust; norms; values; culture; financial performance; social performance |
| Date: | 2015–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/208318&r=all |
| By: | Renaud Bourlès (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Anastasia Cozarenco (CERMi - Centre for European Research in Microfinance, ULB - Université Libre de Bruxelles [Bruxelles] - ULB - Université Libre de Bruxelles, SBS-EM, Centre Emile Bernheim - SBS-EM - Université Libre de Bruxelles (ULB)); Dominique Henriet (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Xavier Joutard (UL2 - Université Lumière - Lyon 2, GATE - GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS) |
| 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. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01171949&r=all |
| By: | Karlan, Dean (Yale University and Innovations for Poverty Action); Jamison, Julian (US Consumer Financial Protection Bureau and Innovations for Poverty Action); Zinman, Jonathan (Dartmouch College and Innovations for Poverty Action) |
| Abstract: | Evidence on the effectiveness of financial education and formal savings account access is lacking, particularly for youth. We randomly assign 250 youth clubs to receive either financial education, access to a cheap group account, or both. The financial education treatments increase financial literacy; the account-only treatment does not. Administrative data shows the education plus account treatment increases bank savings relative to account-only. But survey-measured total savings shows roughly equal increases across all treatment arms. Earned income also increases in all treatment arms. We find little evidence that education and account access are strong complements, and some evidence they are substitutes. |
| JEL: | D12 D91 O12 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:132&r=all |
| By: | Karlan, Dean (Yale University and Innovations for Poverty Action); Osman, Adam (Yale University); Zinman, Jonathan (Dartmouth College and Innovations for Poverty Action) |
| Abstract: | Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory. |
| JEL: | D12 D22 D92 G21 O12 O16 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:126&r=all |
| By: | Beaman, Lori (Northwestern University and Innovations for Poverty Action); Karlan, Dean (Yale University and Innovations for Poverty Action); Thuysbaert, Bram (Ghent University and Innovations for Poverty Action) |
| Abstract: | High transaction and contracting costs are often thought to create credit and savings market failures in developing countries. The microfinance movement grew largely out of business process innovations and subsidies that reduced these costs. We examine an alternative approach, one that infuses no external capital and introduces no change to formal contracts: an improved "technology" for managing informal, collaborative village-based savings groups. Such groups allow, in theory, for more efficient and lower-cost loans and informal savings, and in practice have been scaled up by international non-profit organizations to millions of members. Individuals save together and then lend the accumulated funds back out to themselves. In a randomized evaluation in Mali, we find improvements in food security, consumption smoothing, and buffer stock savings. Although we do find suggestive evidence of higher agricultural output, we do not find overall higher income or expenditure. We also do not find downstream impacts on health, education, social capital, and female decision-making power. Could this have happened before, without any external intervention? Yes. That is what makes the result striking, that indeed there were no resources provided nor legal institutional changes, yet the NGO-guided, improved informal processes led to important changes for households. |
| JEL: | D12 D91 O12 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:136&r=all |