nep-mfd New Economics Papers
on Microfinance
Issue of 2016‒06‒09
three papers chosen by
Olivier Dagnelie
Université de Caen

  1. A little skin in the microfinance game: reducing moral hazard in joint liability group lending through a mandatory collateral requirement By Flatnes, Jon Einar; Carter, Michael R.
  2. Factors Affecting Either the Voluntary Exit or Forced Eviction of Borrowers from Microfinance Loan Networks By Rusiana, Hofner D.; Escalante, Cesar L.
  3. Impact of microcredit on small-farm agricultural production: evidence from Brazil By Gori Maia, Alexandre; Eusebio, Gabriela S.; Silveira, Rodrigo L. F.

  1. By: Flatnes, Jon Einar; Carter, Michael R.
    Abstract: Both collateralized individual loan contracts and joint liability group lending contracts have received much attention in the microfinance literature, yet neither contract has been found to be optimal from a welfare perspective. On the one hand, a heavily collateralized individual loan contract is very risky for borrowers, resulting in low levels of credit market participation. On the other hand, while joint liability contracts are designed to harness the social collateral among community members, numerous studies have shown that such contracts are prone to moral hazard, free-riding, and collusion. This paper analyzes an alternative contract which combines joint liability with a modest collateral requirement. Using a simple theoretical framework, we show that adding a collateral requirement to a joint liability contract reduces moral hazard but has an ambiguous effect on credit market participation. To test the predictions of the model, we conduct a unique framed field experiment among active credit group members in Tanzania. The results demonstrate that adding a collateral requirement reduces moral hazard among borrowers and helps increase repayments without compromising the effect of the social collateral in the groups. Moreover, we find evidence that a collateral requirement leads to a modest reduction in credit market participation.
    Keywords: Credit Rationing, Moral Hazard, Collateral, Field Experiments, Joint Liability, Agricultural Finance, Financial Economics, Institutional and Behavioral Economics, Risk and Uncertainty, D82, G21, O16, Q14,
    Date: 2016
  2. By: Rusiana, Hofner D.; Escalante, Cesar L.
    Abstract: This paper seeks to analyse the issue of loan repayment in microfinance institutions and examine the factors that affect the exit of borrowers from microfinance borrowing networks. This paper presents the analysis of the borrower-level data of agricultural microfinance household borrowers in the Philippines from 2000 to 2010. Results show varied set of reasons to explain both the continued, sustained relationship of MFI borrowers with their lenders as well as the strained relationship with some borrowers who were inevitably evicted from the MFI system or had voluntarily exited the system. The study also indicates that MFI borrowers’ poor repayment records and eventual exit from the MFI system are attributed to borrowers’ weaknesses and uncontrollable circumstances.
    Keywords: microfinance, MFI, loans, Agricultural Finance,
    Date: 2016
  3. By: Gori Maia, Alexandre; Eusebio, Gabriela S.; Silveira, Rodrigo L. F.
    Abstract: The purpose of this study is to analyze the impact of PRONAF credit program on small-farm agricultural production in Brazil. The study compares farmers’ production value considering the obtainment of PRONAF credit, controlling for farm, farms and production system characteristics. The data set consists of the 2006 Agricultural Census, which considers 5.2 million of small farmers in Brazil. In addition to using multiple linear regression model to estimate the net impact of PRONAF on total production value, we applied a propensity score matching method in order to identify pairs of family farms relatively homogeneous, one that accessed the credit and other that did not, estimating the average difference between their production values. Regression analysis showed that the access to PRONAF had a positive and significant net effect on production value of around 18%. In addition, propensity score matching results seemed to exhibit similar evidence to those obtained by regression model. Farmers that obtained PRONAF microcredit presented a production value higher than others, with the difference ranging from 6% to 20%. The impact is lower in the less developed regions, which is characterized by forestry, subsistence agriculture and low technology adoption. For more developed regions, where farmers are more specialized and integrated in the market, the PRONAF has shown relevant net impacts on the production value.
    Keywords: agricultural production, agricultural microcredit, small farms, propensity score, Agricultural and Food Policy, Agricultural Finance, Community/Rural/Urban Development, Crop Production/Industries, Financial Economics,
    Date: 2016

This nep-mfd issue is ©2016 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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