nep-mfd New Economics Papers
on Microfinance
Issue of 2016‒02‒23
four papers chosen by
Olivier Dagnelie
Université de Caen

  1. Can Self-Help Groups Really Be 'Self-Help'? By Greaney, Brian; Kaboski, Joseph P.; Van Leemput, Eva
  2. Bangladesh’s Achievement in Poverty Reduction: The Role of Microfinance Revisited By Khandker, Shahidur R; Samad, Hussain A
  3. Effective Cost of Borrowing from Microfinance Institutions By Tutlani, Ankur
  4. Renewing membership in three community-based health insurance schemes in rural India By Panda, P.; Chakraborty, A.; Raza, W.A.; Bedi, A.S.

  1. By: Greaney, Brian (Yale University); Kaboski, Joseph P. (University of Notre Dame); Van Leemput, Eva (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We provide an experimental and theoretical evaluation of a cost-reducing innovation in the delivery of "self-help group" microfinance services, in which privatized agents earn payments through membership fees for providing services. Under the status quo, agents are paid by an outside donor and offer members free services. In our multi-country randomized control trial we evaluate the change in this incentive scheme on agent behavior and performance, and on overall village-level outcomes. We find that privatized agents start groups, attract members, mobilize savings, and intermediate loans at similar levels after a year but at much lower costs to the NGO. At the village level, we find higher levels of borrowing, business-related savings, and investment in business. Examining mechanisms, we find that self-help groups serve more business-oriented clientele when facilitated by agents who face strong financial incentives.
    Keywords: Microfinance; Self-Help Groups; Privatized Delivery
    JEL: O1 O12 O16
    Date: 2016–01–08
  2. By: Khandker, Shahidur R; Samad, Hussain A
    Abstract: Using long panel survey data collected three times between the years 1991/92 and 2010/11, this paper examines the role of microfinance in poverty reduction in rural Bangladesh. More specifically, in assessing the impact of microfinance on poverty, this paper makes a distinction between the effects of current participation in microfinance programs and those of past participation, and between the effects of continuous participation in microfinance programs and those of irregular participation. Findings suggest that there is a greater decrease in poverty levels for participants in microfinance programs than for non-participants, and for female participants more than for male participants. Additionally, continuous borrowers fare better than irregular borrowers. Overall, microfinance participation, which is found to be cost-effective for borrowers, has contributed to about one-seventh of the total reduction in moderate poverty and one-eleventh of the total reduction in extreme poverty in rural Bangladesh. Finally, this paper recommends the expansion of microfinance funded growth-oriented activities in the non-farm sector, in particular manufacturing and processing activities, so as to reap larger benefits from microfinance.
    Keywords: microfinance , poverty , Bangladesh , rural finance , microfinance dynamics
    Date: 2016–02–19
  3. By: Tutlani, Ankur
    Abstract: It has been observed lately that the dependence on moneylenders for borrowing needs of poor borrowers remained stable despite the presence of MFIs, particularly in developing economies. This is surprising given the fact that MFIs charge relatively lower interest rate as compared to moneylenders. The paper explains this trend by arguing that the effective cost of borrowing from MFI is higher relative to the effective cost of borrowing from moneylender. It is due to the additional burden incurred in the form of transaction costs in case of MFI borrowing. Simulation results also support this phenomenon
    Keywords: Microfinance, Group lending, Informal finance, Transaction cost, Effective cost
    JEL: G21 O17
    Date: 2016–02–12
  4. By: Panda, P.; Chakraborty, A.; Raza, W.A.; Bedi, A.S.
    Abstract: Low renewal rate is a key challenge facing the sustainability of Community-based Health Insurance (CBHI) schemes. While there is a large literature on initial enrolment into such schemes, there is limited evidence on the factors that impede renewal. This paper uses longitudinal data to analyse what determines renewal, both one and two years after the introduction of three CBHI schemes, which have been operating in rural Bihar and Uttar Pradesh since 2011. We find that initial scheme uptake is about 23-24 % and that two years after scheme operation, only about 20 % of the initial enrolees maintain their membership. A household’s socio-economic status does not seem to play a large role in impeding renewal. In some instances, a greater understanding of the scheme boosts renewal. The link between health status and use of health care in maintaining renewal is mixed. The clearest effect is that individuals living in households that have received benefits from the scheme are substantially more likely to renew their contracts. We find that having access to a national health insurance scheme is not a substitute for the CBHI. We conclude that the low retention rates may be attributed to limited benefit packages, slow claims processing times and the gaps between the amounts claimed and amounts paid out by insurance.
    Keywords: community-based health insurance, renewing membership, rural India
    Date: 2015–04–30

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