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on Microfinance |
| By: | Yi Xue (University of International Business and Economics); Xiaochuan Xing (Tsinghua University); Alexander Karaivanov (Simon Fraser University) |
| Abstract: | Survey data from CFPAM, the leading joint-liability microfinance lender in China, indicate that nearly 70% of all borrower groups in the sample are `bogus' -- that is, one person uses all loans given to group members in a single investment project while all other group members act as unproductive cosigners. This practice not only violates CFPAM rules but is also inconsistent with the majority of the theoretical literature on group lending, a basic tenet of which is that each borrower uses their own loan to implement their own investment project (what we call `standard' group). We therefore extend the classic model of group lending under joint liability by explicitly allowing for both standard and bogus groups in a setting with the possibility of strategic default due to limited enforcement. The optimal choice between standard and bogus groups is endogenous and depends on the borrowers' characteristics (project productivity and probability of success). We analyze the optimal group loan contract (or menu of contracts) and show that bogus groups optimally arise when either the productivity differential between the projects in a group is high (in heterogeneous groups), or when the absolute level of project productivity is high (in homogeneous groups). Explicitly allowing for the possibility of bogus groups not only helps the lender avoid losses which would occur if their presence is ignored, but also enhances productive efficiency and borrower welfare in the economy. We test the model predictions with data from rural China and evaluate the welfare gains from implementing the optimal contract (or menu) relative to the benchmarks of: (a) lenders operating unaware of bogus groups or (b) lenders using a contract that endogenously rules out bogus group formation. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:728&r=all |
| By: | KASEM KUNASRI (Chiang Mai Rajabhat University); SOMBAT SINGKHARAT (Chiang Mai Rajabhat University) |
| Abstract: | Many types of state initiated micro-credit institution have been established in Thailand with the primary principle of extending low cost loans to low income individuals so as to eventually help improve their quality of life. However, these micro-credit institutions still have varying degree of operational drawbacks from the absence of supportive structure to ensure organizational sustainability and the lack of efficient and effective credit management systems as they have to function under the framework of specific act by which they are institutionalized. The present endeavor employed meta-frontier concept for determining technology gap ratio and lending efficiency of microcredit institutions operating under different organizational rules and regulations as well as credit management methods with the focus on agricultural cooperatives (AC), village funds (VF), and production-oriented savings groups (PSG). The needed data were collected from 600 samples of such micro-credit organizations. Meta-frontier efficiency scores were found to be different at 0.01 statistically significant level. The group having the highest average score of efficiency is agricultural cooperative (0.6116), followed by village fund (0.4370) and production-oriented savings group (0.4119), respectively. In terms of technology gap ratio, there are differences at 0.01 statistically significant level. The agricultural cooperative group has the highest score at 94.71% whereas the village fund group has the lowest score, 60.93%. The technology gap is a function of optimal group size and different lending systems, i.e., the agricultural cooperatives give on loans under the amount of share capital constraint but the village funds allocate credit for each borrower equally. The findings of this study have led to a recommendation concerning the increase in optimal group size, especially to sub-district level, because size and operational environment can contribute to efficiency enhancement. Moreover, government agencies should change their roles from providing funds to promoting community self-reliance. |
| Keywords: | Meta-frontier; technology gap ratio; micro-credit institutions |
| JEL: | G21 G29 A10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:2704694&r=all |
| By: | Mbaye, Linguère Mously (IZA) |
| Abstract: | This study investigates the impact of remittances on credit markets in Senegal. The findings show that remittances and credit markets are complements; namely, the receipt of remittances increases the likelihood of having a loan in a household. This result is robust after controlling for the potential endogeneity of remittances through household fixed effects and an instrumental variable approach. A detailed analysis also shows that the impact of remittances on credit markets is mainly driven by loans taken for consumption and food, in particular, as well as loans provided by informal institutions. |
| Keywords: | migration, remittances, credit markets |
| JEL: | F24 O15 O16 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9340&r=all |