nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒01‒22
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. The social and financial performance of Microfinance institutions in the MENA region: Do Islamic institutions perform better? By Imène Berguiga; Yosra Said; Philippe Adair
  2. Intermediation in peer-to-peer markets: Evidence from auctions for personal loans By Klein, Thilo

  1. By: Imène Berguiga; Yosra Said; Philippe Adair (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UPEM - Université Paris-Est Marne-la-Vallée)
    Abstract: This paper investigates the relationship between the financial performance and social performance of microfinance institutions (MFIs) from 10 countries of the Middle East and North Africa (MENA) region. Two models with interacting variables are applied to an unbalanced panel of 67 MFIs, including 18 Islamic ones (IMFIs), over the period 2004-2015. It distinguishes SolebusinessIMFIs granting exclusively Islamic services from Window IMFIs that diversify their services (Islamic and conventional). It tests five assumptions about the controversial superiority of IMFIs over conventional MFIs (CMFIs), with respect to their financial performance and social performance. Results show that MFIs, whether Islamic or conventional, face a financial vs. social performance trade-off. Window IMFIs experience higher financial performance than Solebusiness IMFIs and CMFIs. However, the three assumptions regarding financial performance are unverified. Outreach of the Solebusiness IMFIs differs from that of Window IMFIs and CMFIs. Nevertheless, the two assumptions concerning social performance are also unverified. Hence, there is no evidence that IMFIs exceed CMFIs.
    Keywords: Conventional Microfinance,Financial performance,Islamic Microfinance,MENA region, Panel data,Social performance
    Date: 2017–05
  2. By: Klein, Thilo
    Abstract: I examine the role of intermediaries on the world's largest peer-to-peer online lending platform. This marketplace as well as other recently opened lending websites allow people to auction microcredit over the internet and are in line with the disintermediation in financial transactions through the power of enabling technologies. On the online market, the screening of potential borrowers and the monitoring of loan repayment can be delegated to designated group leaders. I find that, despite superior private information, these financial intermediaries perform worse than the average lender with respect to borrower selection. I attribute this to deliberately sending wrong signals. Bivariate probit estimates of the effect of group membership on loan default indicate positive self selection into group loans. That is borrowers with worse observed and unobserved characteristics select into this contract form. I provide evidence that this is due to a missleading group reputation system that is driven by a short term incentive design, which was introduced by the platform to expand the market and has been discontinued. I further find that, after controlling for this group growth driven selection effect, group affliation per se significantly reduces the probability of loan default.
    Keywords: peer-to-peer,finance,market design,matching,auctions
    JEL: D02 D82 G21 O16
    Date: 2017

This nep-mfd issue is ©2018 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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