nep-mfd New Economics Papers
on Microfinance
Issue of 2017‒09‒03
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Returns to Islamic Microfinance: Evidence from a Randomized Experiment in Pakistan By Maazullah,; Bedi, Arjun S.
  2. Efficiency of Micro Finance Institutions in India: A Stochastic Distance Function Approach By Kumar, Nitin; Sensarma, Rudra
  3. Cognitive Bias in Insurance: Evidence from India By Ontiveros, Darwin Ugarte; Platteau, Jean-Philippe

  1. By: Maazullah, (ISS, Erasmus University Rotterdam); Bedi, Arjun S. (ISS, Erasmus University Rotterdam)
    Abstract: The global microfinance movement is driven by the claim that once poor micro-entrepreneurs are provided access to capital, they will be able to generate high returns. The existing evidence on returns to capital is mixed and too limited to substantiate this claim. This paper reports on a field experiment conducted in Pakistan, in co-operation with Akhuwat microfinance, in which interest free loans were randomly provided to microenterprises. We find that treatment leads to a significant increase in working capital and in business profits. Using randomized treatment as an instrument for capital, we find average monthly returns to capital of 8.6 to 11.9 a month. These returns are substantially higher than the interest rates charged by microfinance institutions in Pakistan.
    Keywords: returns to capital, microfinance, microenterprises, randomized experiment, Akhuwat microfinance
    JEL: O17 O16 C93
    Date: 2017–08
  2. By: Kumar, Nitin; Sensarma, Rudra
    Abstract: We examine the efficiency-outreach debate in the context of Indian Micro Finance Institutions (MFIs). We employ the stochastic distance function approach for 75 MFIs during 2004-2011. We find that there are significant inefficiency effects but efficiency is improving over time. Among the determinants of inefficiency, average loan balance per borrower and number of women borrowers appear to improve efficiency. This suggests that the efficiency-outreach debate is more nuanced than is presented in the literature and depends on the way outreach is defined. Profitability, size and leverage seem to increase efficiency whereas age of the MFI is associated with higher inefficiency.
    Keywords: Micro Finance Institutions; Efficiency; Stochastic Distance Function
    JEL: C33 C51 G21
    Date: 2017–07
  3. By: Ontiveros, Darwin Ugarte; Platteau, Jean-Philippe
    Abstract: This paper is an attempt to understand the factors behind low contract renewal rates frequently observed in insurance programs in poor countries. This is done on the basis of the experience of a micro-insurance health program in India. We show that poor understanding of the insurance concept, compounded by a serious supply-side information failure, is a major cause of low contract renewal among households which had previously enrolled into the program. Controlling for the level of their information about how to collect the insurance payout, households that did not experience a health shock during the first year tended to pull out of the scheme when they are subject to a cognitive bias reflected in short-term framing. When they are classic expected utility maximizers, however, the absence of a health shock did not affect their contract renewal decision. The policy implication of our findings is considerable since they provide a strong justification for mandatory universal health insurance.
    Keywords: cognitive ability; health economics; information failure; Insurance; myopic behavior; non-governmental organizations
    JEL: D01 D03 I13 O12 O16
    Date: 2017–08

This nep-mfd issue is ©2017 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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