nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒11‒07
twelve papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Household Allocation of Microfinance Loans in Kyrgyzstan By Angioloni, Simone; Kudabaev, Zarylbek; Ames, Glenn; Wetzstein, Michael
  2. Comparative Poverty Status of Users and Non-Users of Micro Credit in Kwara State, Nigeria By Falola, Abraham; Ayinde, Opeyemi; Mark, Mercy; Ezekiel, Israel
  3. The Interrelated Dynamics of Multiple Borrowing and Over-indebtedness among Rural Households in Thailand and Vietnam By Chichaibelu, Bezawit; Waibel, Hermann
  4. Women Access to Credit: An Empirical Evidence from Eritrea By Bahta, Y.T.; Strydom, D.B.; Donkor, Emmanuel
  5. Impact of Access to Credit on Agricultural Productivity: Evidence from Smallholder Cassava Farmers in Nigeria By Awotide, B.A.; Abdoulaye, T.; Alene, A.; Manyong, V.M.
  6. Barreras de acceso de la mujer rural a crédito, programas asociativos y a la formalización de la tierra en el Norte del Cauca y el Sur del Tolima. Productos 3 y 4 By Juan Mauricio Ramírez; Susana Martínez-Restrepo; Adriana Sabogal; Erika Enríquez; Ricardo Salas; Viviana Rodríguez
  7. Rosca Meets Formal Credit Market By Hanming Fang; Rongzhu Ke; Li-An Zhou
  8. Formal and informal insurance: experimental evidence from Ethiopia By Berhane, Guush; Dercon, Stefan; Hill, Ruth; Taffesse, Alemayehu
  9. Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia By Veronika Bertram-Huemmer; Kati Kraehnert
  10. Certain and Uncertain Utility and Insurance Demand: Results From a Framed Field Experiment in Burkina Faso By Serfilippi, Elena; Carter, Michael; Guirkinger, Catherine
  11. Competing theories of risk preferences and the demand for crop insurance: Experimental evidence from Peru By Petraud, Jean; Boucher, Stephen; Carter, Michael
  12. Willingness to Pay for Crop Insurance Premium-A Study on Maize Farmers in India By Kiran, Shashi; Umesh, K.B.

  1. By: Angioloni, Simone; Kudabaev, Zarylbek; Ames, Glenn; Wetzstein, Michael
    Abstract: Within Kyrgyzstan, microfinance provides the largest source of credit for lowincome households. The allocation of these loans between current consumption and investment has a direct bearing on the impact these loans have on rural development. For investigating this allocation, a multivariate Probit model is developed and populated with borrowers’ loan allocations from 2006 to 2010. Key factors considered are education, gender, equipment ownership, and geographical region. Results indicate that the Naryn region has the largest impact on borrowers’ likelihood to allocate loans toward food and the smallest (negative) impact on the probability of starting a new business. Mobile phone and livestock ownership were identified as two key factors, which decreases borrowers’ probability of using loans to purchase food and increases the probability of agricultural investment or to start a business.
    Keywords: Consumer/Household Economics, Financial Economics,
    Date: 2015
  2. By: Falola, Abraham; Ayinde, Opeyemi; Mark, Mercy; Ezekiel, Israel
    Abstract: The essence of this study is to assess the impact of Micro credit on farmers’ poverty status in Kwara state, Nigeria. 50 users and 100 non-users of Micro credit facilities were randomly selected. Descriptive statistics was used to describe the socio-economic characteristics of the respondents. The determinants of poverty status of the farmers were analyzed using logistic model. The Foster-Greer-Thorbecke (FGT) model was used to analyze the extent of poverty among the farming households. The results show that majority of the users and non-users are married with 92% and 82% respectively. Majority (96%) of the users had some level of formal education while, majority (88%) of the non-users had no formal education. The FGT result shows that the poverty status of non-users is higher than that of the users. Age of the household head and the household size had positive effect on the household’s poverty status.
    Keywords: Micro credit, poverty, income inequality, household income, profitability, Consumer/Household Economics, Food Security and Poverty, C00, C5, Q14,
    Date: 2015
  3. By: Chichaibelu, Bezawit; Waibel, Hermann
    Abstract: Does multiple borrowing lead micro-borrowers into over-indebtednes? Do over-indebted micro-borrowers take loans to refinance existing loans that are ultimately unpayable and get trapped in a vicious circle of debt? Using a longitudinal household survey data, this study addresses such questions by examining the dynamic interdependency between over-indebtedness and multiple borrowing in the context of micro-borrowers in Thailand and Vietnam. Specifically, the trues state dependence and cross-state dependence effects of over-indebtedness and multiple borrowing are tested using the dynamic random effect bivariate probit model while controlling for observed and unobserved household heterogeneity. Results suggest that taking multiple borrowing simultaneously does positively influence household's risk of becoming over-indebted in Thailand, while in Vietnam it has no significant influence on household's risk of over-indebtedness. Although households reported of taking multiple loans to repay old debts, the empirical results do not support the premises that over-indebtedness reinforces households to refinance ultimately unpayable debts and trap households into a perpetual debt cycle.
    Keywords: Agricultural Finance, Consumer/Household Economics,
    Date: 2015
  4. By: Bahta, Y.T.; Strydom, D.B.; Donkor, Emmanuel
    Abstract: This paper accesses the availability of credit for women in Eritrea using a probit regression model. A woman as a variable is fitted into the probit model with other variables. The parameters in the model are estimated using the maximum likelihood approach over the ordinary least square because the dependent variable is a binary. For policy implications, the marginal effects of the explanatory variables are also derived. The result shows that gender and adoption of rain water collection technology had the greatest impacts on women access to credit followed by access to extension officer visit and number of children in the household. Women households had less to access credit facility due to collateral and social constraints, especially in the male-dominated agricultural businesses. Without serve as collateral, women are also cut off from access to credit, and without credit, they often cannot buy essential inputs to boost production. The study recommends that, Saving and Micro-credit program (SMCP) in Eritrea doing valuable work in improving women’s access to credit, the government should mobilize resources to coordinate among different stakeholders involved in development programs and the financial institutions to sustained and ensure women’s access to credit.
    Keywords: Women, access to credit, probit model, marginal effect, maximum likelihood approach, Consumer/Household Economics,
    Date: 2015
  5. By: Awotide, B.A.; Abdoulaye, T.; Alene, A.; Manyong, V.M.
    Abstract: This study examines the impact of access to credit on agricultural productivity in Nigeria using the Endogenous Switching Regression Model (ESRM)). The first stage of the ESRM reveals that total livestock unit and farm size are positive and statistically significant in determining the farmers’ access to credit. The second stage reveals that total livestock unit and farm size are negative and statistically significant in explaining the variations in cassava productivity among the farmers that have access to credit, while household size, farm size, and access to information assets are negative and statistically significant in explaining the variation in cassava productivity among the farmers without access to credit. Access to credit has a significant positive impact on cassava productivity. Thus, credit institutions should consider boosting their credit services to rural farming households in order to guarantee that more households benefit from it.
    Keywords: Credit, Impact, Cassava, Productivity, Farmers, Nigeria, Agricultural and Food Policy, Agricultural Finance, O12, Q14, Q16, Q55,
    Date: 2015
  6. By: Juan Mauricio Ramírez; Susana Martínez-Restrepo; Adriana Sabogal; Erika Enríquez; Ricardo Salas; Viviana Rodríguez
    Abstract: El Ministerio de Agricultura y Desarrollo Rural (MADR) y el Banco Agrario han desarrollado en los últimos años diversos programas asociativos y de microcrédito para mejorar la generación de ingresos y la competitividad en el campo, algunos de ellos con un énfasis especial de género. Sin embargo, y a pesar de no tener restricciones directas que discriminen a las mujeres en estos programas, según datos del MADR, la participación de las mujeres en las diferentes estrategias es significativamente menor que la de los hombres, salvo para el Programa de Formalización de la Propiedad Rural. El objetivo central de este estudio es identificar y analizar las barreras de acceso y los cuellos de botella que las mujeres en zonas rurales tienen que enfrentar para acceder a programas asociativos del MADR (i.e. Oportunidades Rurales, Mujer Rural y Alianzas Productivas), al Programa de Formalización de la Propiedad Rural del MADR y al crédito formal, en particular a las líneas de crédito para mujer rural de bajos ingresos del Banco Agrario. Para tal fin se llevó a cabo trabajo de campo cuantitativo y cualitativo en dos zonas del país fuertemente afectadas por el conflicto y con una proporción importante de población indígena y afrodescendiente: el Norte del Cauca y el Sur del Tolima. Se halló que existen barreras de acceso específicas de género (p.ej. falta de empoderamiento, autoridad patriarcal o machista, falta de acceso a información, falta de activos monetarios y productivos, baja participación laboral e importantes responsabilidades en el hogar y en el cuidado de los hijos que dificultan su participación en programas) y otras que son neutras en cuanto a género, pero que por el contexto en el que viven estas mujeres rurales, afectan más a las mujeres que a los hombres (p.ej. bajos niveles educativos, baja comprensión de textos, baja educación financiera, desconocimiento de estructuración de proyectos, poca experiencia en proyectos productivos, aislamiento geográfico, falta de documentos, desconocimiento de trámites y bajo conocimiento de aspectos jurídicos, entre otros).
    Keywords: Mujer Rural, Barreras de Acceso a Programas, Programas Asociativos, Programa de Formalización de la Propiedad Rural, Alianzas Productivas, Oportunidades Rurales, Crédito Formal, Sector Agropecuario, Norte del Cauca, Sur del Tolima
    JEL: Q10 Q15 R51
    Date: 2015–04–30
  7. By: Hanming Fang; Rongzhu Ke; Li-An Zhou
    Abstract: Rotating Savings and Credit Association (Rosca) is an important informal financial institution in many parts of the world used by participants to share income risks. What is the role of Rosca when formal credit market is introduced? We develop a model in which risk-averse participants attempt to hedge against their private income shocks with access to both Rosca and the formal credit and investigate their interactions. Using the gap of the borrowing and saving interest rates as a measure of the imperfectness of the credit market, we compare three cases: (i) Rosca without credit market; (ii) Rosca with a perfect credit market; (iii) Rosca with an imperfect credit market. We show that a perfect credit market completely crowds out the role of Rosca. However, when credit market is present but imperfect, we show that Rosca and the formal credit market can complement each other in improving social welfare. Interestingly, we find that the social welfare in an environment with both Rosca and formal credit market does not necessarily increase monotonically as the imperfectness of the credit market converges to zero.
    JEL: D44 G21 O16 O17
    Date: 2015–10
  8. By: Berhane, Guush; Dercon, Stefan; Hill, Ruth; Taffesse, Alemayehu
    Abstract: We examine the impact of formal insurance and informal risk-sharing institutions on welfare, and the complementarity between these forms of formal and informal insurance. As in a number of other studies, formal rainfall index insurance was offered to farmers. However in this study support to local risk sharing institutions—iddirs—was also provided to strengthen the extent to which they were able to insure members against idiosyncratic shocks. Access to insurance and support to iddirs was randomized across villages during two agricultural seasons. Results show that formal insurance has a significant impact on encouraging productive investments, particularly investments in fertilizer, replicating the results found in Ghana in Karlan et al (2013). Strengthening risk-sharing through iddirs increases formal insurance demand (consistent with the results in Dercon et al 2013) and some welfare outcomes, but does not cause insurance to have any additional effect on productive outcomes. There is also some evidence that strengthening risk-sharing through local institutions reduces individual bilateral transfers.
    Keywords: index insurance, risk sharing institutions, impact, International Development, Risk and Uncertainty,
    Date: 2015
  9. By: Veronika Bertram-Huemmer; Kati Kraehnert
    Abstract: This paper investigates the impact of indemnity payments from index insurance on the asset recovery of households after a catastrophic weather disaster occurs. Our focus is on the Index-Based Livestock Insurance (IBLI) in Mongolia. We analyze the effect of IBLI indemnity payments after a once-in-50-year winter disaster struck Mongolia over 2009/10. The database for our analysis is three waves of a household panel survey implemented in western Mongolia. We employ the bias-corrected matching estimator to account for selection into purchasing IBLI. Results indicate that pastoralist households purchasing IBLI before the shock recover faster from shock-induced asset losses than comparable non-insured households. We find a significant, positive and economically large effect of IBLI indemnity payments on herd size one and two years after the shock. In the medium term - three and four years after the shock - the effect slowly vanishes. Results are robust to defining post-shock livestock recovery in different ways, varying the number of matches per observation, the choice of covariates, and the use of alternative propensity score estimators. An analysis of shock coping strategies as well as complementary qualitative interviews conducted in the field suggest that indemnity payments help herders to avoid selling and slaughtering animals and smooth their productive asset base. Also, IBLI appears to have relieved households from credit constraints. Our study is among the first to provide evidence on the beneficial effects of index insurance after a weather shock in a developing economy.
    Keywords: Index insurance, livestock, weather shocks, Mongolia
    JEL: O12 O13 Q14
    Date: 2015
  10. By: Serfilippi, Elena; Carter, Michael; Guirkinger, Catherine
    Abstract: In this paper, we argue that discontinuous preference over certain and uncertain outcomes (as in Andreoni and Sprenger, 2009; 2012) have a dampening effect on the demand for insurance. The intuition is that if agents exhibit a disproportionate preference for certain outcomes, they would undervalue uncertain insurance indemnity payments compared to certain premium cost and exhibit lower demand for insurance compared to a classic expected utility maximizer. Inspired by the seminal work of Andreoni and Sprenger, we design games to identify agents with a disproportionate preference for certain outcomes and play them with 571 cotton farmers in Western Burkina-Faso. We then provide experimental evidence that this is a powerful framework to understand demand for micro-insurance. Specifically we show that agents with discontinuous preference respond positively to an alternative presentation of a classic insurance contract: they are willing to pay more for a given contract if the premium cost is artificially made uncertain by being directly deducted from indemnity payments. We also explore alternative behavioral arguments such as loss aversion but argue that they offer less appealing framework to understand the full set of our results. Our results have practical implications for the design of insurance contracts.
    Keywords: Index Insurance, Risk and Uncertainty, Discontinuity of preferences, Field Experiments, Crop Production/Industries, Q12, D03,
    Date: 2015
  11. By: Petraud, Jean; Boucher, Stephen; Carter, Michael
    Abstract: Low demand for index insurance in several recent pilot programs has created a puzzle for development economists and policy makers concerned with enhancing farmers risk management capacity in low-income economies. This paper contributes to the resolution of this puzzle by providing empirical evidence on the relative effectiveness of two primary frameworks for modeling decision-making under uncertainty. Specifically, we test whether features of Cumulative Prospect Theory (CPT), or Expected Utility Theory (EUT), better predict farmers' demand for crop insurance. Whereas in EUT, risk preferences can be represented by a single risk aversion parameter, in CPT they are determined by at least four components: probability weighting, the curvature of a utility function, a reference income and loss aversion. The data come from a series of unframed and framed lotteries played with 480 small-holder cotton farmers in southern Peru. The unframed risk games allow us to measure individual-specific preference parameters, for both theories. We use these parameters to generate predictions of farmers' choices in two framed insurance games in which farmers choose to purchase one of two available insurance contracts or to purchase no insurance. In the first game, farmers' earnings are framed as gross revenues and are always positive, i.e., this game is played over gains. In the second game, earnings are framed as net revenues and may be either positive or negative so that this is a game played over mixed prospects. We test the relative performance of the two theories by comparing the predictions of farmers' choices versus their actual choices in the insurance games. An important finding with respect to marketing of insurance contracts is that framing incomes as net revenues instead of gross revenues increases the CPT predicted demand by 24%. In the actual insurance games however, only 8% more farmers chose insurance in the net revenues frame. We find that neither theory is a particularly strong predictor of insurance choices, although EUT fares better than CPT for better educated farmers.
    Keywords: Crop Production/Industries,
    Date: 2015
  12. By: Kiran, Shashi; Umesh, K.B.
    Abstract: Agricultural activity is subject to a wide range of risks due to the variable economic and biophysical environment in which farming operates. Agriculture risks arise due to uncertainty over factors determining returns to agricultural production. Crop insurance is one of the risk mitigating strategies for farmers. The objective of the study was to estimate WTP by the rainfed maize farmres to crop insurance premium and also factors influencing their WTP. The study revealed that farmers were willing to pay 0.34 percent more premium than the prevailing rate to insure their crop. The average probability of WTP of farmers for crop insurance premium was 0.53. Age was the important factor influencing their WTP. It was observed that farmers' awareness about the products and procedures of crop insurance was poor. Hence, efforts should be made to increase the awareness and help farmers to take advantage of crop insurance.
    Keywords: Risk, Crop insurance, Premium, Willingness to pay, Agricultural Finance, Crop Production/Industries,
    Date: 2015

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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