nep-mfd New Economics Papers
on Microfinance
Issue of 2016‒10‒09
eight papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Financing Smallholder Agriculture: An Experiment wth Agent-Intermediated Microloans in India By Maitra, Pushkar; Mitra, Sandip; Mookherjee, Dilip; Motta, Alberto; Visaria, Sujata
  2. The Role of Rating and Loan Characteristics in Online Microfunding Behaviors By Gaurav Paruthi; Enrique Frias-Martinez; Vanessa Frias-Martinez
  3. Is microfinance truly useless for poverty reduction and women empowerment? A Bayesian spatial-propensity score matching evaluation in Bolivia By Rolando Gonzales; Joel Mendizabal; Patricia Aranda
  4. Gender, Group and Moral Hazard in Microfinance: Evidence from Matrilineal and Patrilineal Societies in India By Michael Price; Shagata Mukherjee
  5. Access to microcredit and women’s entrepreneurship: evidence from Bangladesh By M. Jahangir Alam Chowdhury; Shabnaz Amin; Tazrina Farah
  6. Empowering the vulnerable to be entrepreneurs: An empirical test on the efectiveness of the Ghana microfinance policy 2006 By Díaz Serrano, Lluís; Sackey, Frank G.
  7. "Financial Constraint, Entrepreneurship and Sectoral Migrations " By Pierrick Baraton; Florian Léon
  8. Overview of Financial Inclusion, Regulation, and Education By Yoshino, Naoyuki; Morgan, Peter J.

  1. By: Maitra, Pushkar; Mitra, Sandip; Mookherjee, Dilip; Motta, Alberto; Visaria, Sujata
    Abstract: Recent evaluations have found that traditional microloans have iinsignificant impacts on incomes and output. Randomly selected villages in West Bengal, India participated in a field experiment with a novel variant of microcredit called TRAIL, where the selection of borrowers of individual liability loans was delegated to local trader-lender agents incentivized by repayment-based commissions. Other randomly selected villages participated in a group-based microcredit program called GBL. TRAIL loans increased the production of the leading cash crop and farm incomes by 27-37%, but GBL loans had insignificant effects. To understand underlying mechanisms, we develop and test a theoretical model that explains borrower selection into the two schemes as well as borrower incentives to invest the loans for productive purposes. We find that borrowers selected by the TRAIL agents were more able farmers than those who self-selected into the GBL scheme; this pattern of selection explains about a third of the observed di fference in income impacts.
    Keywords: Agent-based Lending; Agricultural Finance; Group Lending; Repayment; selection
    JEL: D82 O16
    Date: 2016–09
  2. By: Gaurav Paruthi (University of Michigan); Enrique Frias-Martinez (Telefonica Research); Vanessa Frias-Martinez (University of Maryland)
    Abstract: We propose an in-depth study of lending behaviors in Kiva using a mix of quantitative and large-scale data mining techniques. Kiva is a non-profit organization that offers an online platform to connect lenders with borrowers. Their site,, allows citizens to microlend small amounts of money to entrepreneurs (borrowers) from different countries. The borrowers are always affiliated with a Field Partner (FP) which can be a microfinance institution (MFI) or other type of local organization that has partnered with Kiva. Field partners give loans to selected businesses based on their local knowledge regarding the country, the business sector including agriculture, health or manufacture among others, and the borrower.Our objective is to understand the relationship between lending activity and various features offered by the online platform. Specifically, we focus on two research questions: (i) the role that MFI ratings play in driving lending activity and (ii) the role that various loan features have in the lending behavior. The first question analyzes whether there exists a relationship between the MFI ratings - that lenders can explore online - and their lending volumes. The second research question attempts to understand if certain loan features - available online at Kiva - such as the type of small business, the gender of the borrower, or the loan's country information might affect the way lenders lend.
    Date: 2016–09
  3. By: Rolando Gonzales; Joel Mendizabal; Patricia Aranda
    Abstract: Banerjee et al. (2015) presented the results of six randomized evaluations that led them to conclude that micro-credit does not have a transformative impact on poverty and that little evidence of substantial effects on women's empowerment exist. We argue that even if no effects of micro-finance exist at the household/individual level, there still may be observable effects at the regional level due to the wider impacts of microfinance. A Bayesian Spatial-Propensity Score Matching estimator is proposed to measure these regional (spatial) treatment effects. The regional effects of microfinance in Bolivia were tested with this estimator, using census and household survey data. The results – conditional on the assumptions of the study– showed that microfinance was useful for poverty reduction and women’s-empowerment at the municipal level in Bolivia, thus suggesting that microfinance can be used to promote socio-economic development at the regional level.
    Keywords: Microfinance, spillover effects, Bayesian methods, spatial statistics, matching
    JEL: C11 C31 G21
    Date: 2016
  4. By: Michael Price; Shagata Mukherjee
    Abstract: This study takes a first step to advance our understanding of the strategic interaction between the constituent components of default in microfinance and how to mitigate them. We conduct controlled microfinance field experiments in rural India to provide a systematic analysis of the relationship between gender, group liability and moral hazard. By varying the contract structure across different microfinance games, our experiment decomposes the two moral hazard (ex-ante and ex-post) channels and find that their effect on default are counteractive rather than additive for women clients. The study facilitates heterogeneity analysis of gender on moral hazard across comparable matrilineal and patrilineal societies in two neighboring states of India. We find that matrilineal women are less risk averse and are more likely to invest in the risky project (ex-ante moral hazard) than women in patrilineal societies. Moreover, we find a reversal of gender effect on strategic default (ex-post moral hazard) across the two societies, suggesting the importance of social norms and gender roles on financial behavior. Our results indicate that policymaking in microfinance should be designed by considering the heterogeneity of diverse societies, gender roles, norms and the underlying socio-economic factors that motivate financial behavior among borrowers.
    Date: 2016
  5. By: M. Jahangir Alam Chowdhury; Shabnaz Amin; Tazrina Farah
    Abstract: This paper intends to assess the impact of access to microcredit on women’s entrepreneurship in Bangladesh. The descriptive statistics and multivariate techniques have been used to achieve the objective of the paper. The study uses Household Income and Expenditure survey (HIES) 2010 dataset. The HIES 2010 survey covers 12,240 households from all districts in the country. Considering the endogeneity in the microcredit program participation of women, the study uses an instrumental variables technique (IV method) to assess the impact of access to microcredit on the entrepreneurial status of women. After adjustment for the endogeneity, the results from the multivariate analysis indicate that access to microcredit has a significant and positive impact on women’s entrepreneurship. It also has a significant and positive impact on men’s entrepreneurship and the marginal effects of access to microcredit are stronger on men’s entrepreneurship than on women’s entrepreneurship.
    Keywords: : Access to Credit, Women’s Entrepreneurship, Bangladesh
    JEL: L26 J16
    Date: 2016
  6. By: Díaz Serrano, Lluís; Sackey, Frank G.
    Abstract: The study aims at testing the Ghana Microfinance Policy set up to support the vulnerable through access to credit. We resort to the Blinder-Oaxaca decomposition to determine if there is positive discrimination in favor of women and young entrepreneurs in the rationing behavior of the microfinance companies. This is what we should expect if the policy is effective. Our results show that even after controlling for a large number of borrower characteristics, microfinance type and credit worthiness variables, there is positive discrimination that favors female and young entrepreneurs as this discrimination is largely determined by the differential treatment these groups receive in respect of men and older borrowers from microfinance institutions. Our results show that the Government microfinance is the most severe in the rationing behavior towards the discriminating groups.
    Keywords: Microfinances -- Ghana, Crèdit -- Ghana, Programes d'acció positiva -- Ghana, 334 - Formes d'organització i cooperació en l'economia,
    Date: 2016
  7. By: Pierrick Baraton (CERDI - University of Auvergne); Florian Léon (CREA, Université du Luxembourg)
    Abstract: Using an original database of over 3,000 micro and small enterprises (MSEs) that were micro finance institution (MFI) clients in Madagascar over the period of 2008-2014, we observe that around one third of these entrepreneurs switched business sectors in the first five years after starting their business. We find that the probability of an entrepreneur's changing sectors is highly correlated with the size of the first loan obtained from the MFI. This result survives multiple robustness checks, including treatment for endogeneity and attrition. We interpret this finding in terms of financial constraint: a lack of financing prevents an entrepreneur from initially investing in his first choice sector, causing him to change sectors only when he has become financially able to do so. This result challenges the classic distinction made between necessity entrepreneurs" and "opportunity entrepreneurs" and raises important questions concerning entrepreneurial talent allocation.
    Keywords: Entrepreneurship, Financial constraint, firm dynamics, Madagascar
    JEL: L26 M13 O16 O55
    Date: 2016
  8. By: Yoshino, Naoyuki (Asian Development Bank Institute); Morgan, Peter J. (Asian Development Bank Institute)
    Abstract: Financial inclusion is receiving increasing attention as having the potential to contribute to economic and financial development while at the same time fostering more inclusive growth and greater income equality. However, although substantial progress has been made, there is still much to achieve. East Asia and the Pacific and South Asia combined account for 55% of the world’s unbanked adults, mainly in India and the People’s Republic of China (PRC). This paper surveys the experience of a number of advanced and Asian emerging economies to assess factors affecting the ability of low-income households and small firms to access financial services, including financial literacy, financial education programs and financial regulatory frameworks, and identify policies that can improve their financial access while maintaining financial stability. It aims to identify successful experiences and important lessons that can be adopted by other emerging economies. This analysis is based on studies of the experiences of Germany, the United Kingdom, Bangladesh, India, Indonesia, the Philippines, Sri Lanka and Thailand. The study aims to take a practical and holistic approach to issues related to financial inclusion. For example, innovative methods of promoting financial access, such as mobile phone banking and micro-finance, require corresponding innovations in regulatory frameworks, perimeters and capacity. Moreover, programs in the areas of financial education and consumer protection are needed to enable households and small firms to take full advantage of improvements in financial access.
    Keywords: financial inclusion; banks; financial regulation; payments systems; small and medium-sized enterprises; financial education
    JEL: G21 G28 I22 O16
    Date: 2016–10–04

This nep-mfd issue is ©2016 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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