nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒02‒26
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Unpacking a Multi-Faceted Program to Build Sustainable Income for the Very Poor By Abhijit Banerjee; Dean Karlan; Robert Darko Osei; Hannah Trachtman; Christopher Udry
  2. Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines By Dean Karlan; Sendhil Mullainathan; Benjamin N. Roth
  3. The Microfinance Disappointment: An Explanation based on Risk Aversion By Khazanov, Alexey; Moav, Omer; Neeman, Zvika; Zoabi, Hosny

  1. By: Abhijit Banerjee; Dean Karlan; Robert Darko Osei; Hannah Trachtman; Christopher Udry
    Abstract: A multi-faceted program comprising a grant of productive assets, training, coaching, and savings has been found to build sustainable income for those in extreme poverty. We focus on two important questions: whether a mere grant of productive assets would generate similar impacts (it does not), and whether access to a savings account and a deposit collection service would generate similar impacts (it does not).
    JEL: D12 O12 O17
    Date: 2018–02
  2. By: Dean Karlan; Sendhil Mullainathan; Benjamin N. Roth
    Abstract: A debt trap occurs when someone takes on a high-interest rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by re-financing). Studying such practices is important for understanding financial decision-making of households in dire circumstances, and also for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.
    JEL: D12 D91 O12
    Date: 2018–02
  3. By: Khazanov, Alexey; Moav, Omer; Neeman, Zvika; Zoabi, Hosny
    Abstract: Recent research indicates that microcredit has not contributed significantly to poverty reduction. Take up of affordable credit by the poor for investment in businesses, education and health, turned out to be very low. We argue that this can be explained by risk aversion, when investment affects the probability of success of a risky project. Our model abstracts from fixed costs in the production technology, commonly assumed in the existing literature. There are no imperfections in the loan market, and we abstract from assumptions about false beliefs by the poor regarding the production function or other behavioral assumptions. We conclude that to facilitate investment and thereby reduce poverty, policy should be aimed at reducing the risk faced by the poor.
    Date: 2018–01

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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