nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒02‒05
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Do banks and microfinance institutions compete? Microevidence from Madagascar By Pierrick Baraton; Florian LEON
  2. Global financial crisis, credit access and children: Evidence from Tanzania By Abdel-Latif, Hany; Murphy, Phil; Ouattara, Bazoumana

  1. By: Pierrick Baraton (CERDI, Université d'Auvergne, France); Florian LEON (CREA, Université du Luxembourg)
    Abstract: In recent years, both microfinance institutions (MFIs) and banks across the world have been converging towards the financing of small enterprises with high financing needs. This paper scrutinizes whether banks and MFIs compete each other as a result of recent transfor- mations in both industries. In doing so, we study whether the loan strategy of a microfinance institution is shaped by the local presence of a bank. Specifically, we investigate whether bank proximity influences loan conditions provided by one of the largest microfinance institutions in Madagascar. We employ an original panel dataset of 32,374 loans granted to 14,834 borrowers over the period 2008-2014. We find that the closer a bank is located to a given MFI borrower, the larger the loan obtained and the less collateral required. These results are insensitive to several robustness tests for possible endogeneity of distance, sample selection issue, and alter- native specifications. In addition, findings are stronger for larger and more established (older) firms in line with our hypothesis.
    Keywords: Microfinance; Banks; Competition; Loan conditions; Mission drift; Distance
    JEL: G21 O16
    Date: 2018
  2. By: Abdel-Latif, Hany; Murphy, Phil; Ouattara, Bazoumana
    Abstract: This paper investigates the relationship between the recent global financial crisis and child labour in Tanzania. Using the difference-in-difference methodological framework, we identify households' access to credit as a possible transmission channel of the financial crisis to child labour. Unlike most of the existing studies that employ self-reported shocks, we exploit the incidence of the global crisis as an exogenous shock to compare households that were credit recipients before the crisis with households that were not recipients of credit either prior to the crisis or in its immediate aftermath. To deal with possible bias from the endogeneity of access to credit, this study proposes a new instrument that considers the regional concentration of available micro finance institutions and the number of households' assets. Unlike instruments suggested by the existing literature, our proposed instrument incorporates information on both demand and supply sides of credit access irrespective of whether a household has actually received credit. To avoid the wealth effect which would violate the exogeniety condition, we suggest to count the number of the household's assets no matter how much value they possess. By doing so, our instrument utilizes information on how risk averse a household is and therefore their chances of making a successful loan application. The empirical results reveal that a negative shock on credit-recipient households is associated with a significant increase in child labour in Tanzania.
    Keywords: Global Financial Crisis, Child Labour, Credit Access, Tanzania
    JEL: D13 J43 J81 O15
    Date: 2016–06–15

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