nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒03‒19
seven papers chosen by
Olivier Dagnelie
Université de Caen

  1. Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis By Emily Breza; Cynthia Kinnan
  2. The determinants of interest rates in microfinance: age, scale and organisational charter By Jacinta C. Nwachukwu; Aqsa Aziz; Uchenna Tony-Okeke; Simplice A. Asongu
  3. The impact of credit policy on rice production in Myanmar: A fuzzy regression discontinuity design approach By Nilar Aung; Hoa-Thi-Minh Nguyen; Robert Sparrow
  4. Cambio técnico en el sector regulado de las microfinanzas peruanas: 2003-2015 By Giovanna Aguilar; Jhonatan Portilla
  5. When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information By Minkyung Kim; K. Sudhir; Kosuke Uetake; Rodrigo Canales
  6. Will Urban Migrants Formally Insure their Rural Relatives? Family Networks and Rainfall Index Insurance in Burkina Faso By Harounan Kazianga; Zaki Wahhaj
  7. The effect of weather index insurance on social capital: Experimental evidence from Ethiopia By Nigus, Halefom; Nillesen, Eleonora; Mohnen, Pierre

  1. By: Emily Breza; Cynthia Kinnan
    Abstract: In October 2010, the state government of Andhra Pradesh, India issued an emergency ordinance, bringing microfinance activities in the state to a complete halt and causing a nation-wide shock to the liquidity of lenders, especially those with loans in the affected state. We use this massive dislocation in the microfinance market to identify the causal impacts of a reduction in credit supply on consumption, earnings, and employment in general equilibrium. Using a proprietary, hand-collected district-level data set from 25 separate, for-profit microlenders matched with household data from the National Sample Survey, we find that district-level reductions in credit supply are associated with significant decreases in casual daily wages, household wage earnings and consumption. We also find that wages in the non-tradable sector fall more than in the tradable sector (agriculture), suggesting that one important impact of the microfinance contraction was transmitted through its effect on aggregate demand. We present a simple two period, two-sector model of the rural economy illustrating this channel and show that our wage results are consistent with a simple calibration of the model.
    JEL: D50 G21 O16
    Date: 2018–02
  2. By: Jacinta C. Nwachukwu (Coventry University, UK.); Aqsa Aziz (Coventry University, UK.); Uchenna Tony-Okeke (Coventry University, UK.); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs.
    Keywords: Microfinance; microbanks; non-bank financial institutions
    JEL: G21 G23 G28 E43 N20
    Date: 2018–01
  3. By: Nilar Aung; Hoa-Thi-Minh Nguyen; Robert Sparrow
    Abstract: Rural finance has long been an important tool for poverty reduction and rural development by donors and governments, but the impacts have been controversial. Measuring impact is challenging due to identification problems caused by selection bias and governments' targeted interventions, while randomised trial data is scarce and limited to contexts where little to no rural fiance exists. Using an author-collected data set, we provide insights on a large-scale long-lasting subsidized rice credit programme in Myanmar, one of the poorest and, until recently, most economically isolated countries in Asia. Identification relies on a fuzzy regression discontinuity design, exploiting an arbitrary element to the credit provision rule which is based on rice land holding size. Although we find little evidence that rice yield or output is increased, we do see that the program has some positive effects on total household income, suggesting a positive spillover effect on other farm income activities.
    Keywords: Rural finance, regression discontinuity, credit, rice production, Myanmar
    Date: 2018–01
  4. By: Giovanna Aguilar (Departamento de Economía de la Pontificia Universidad Católica del Perú); Jhonatan Portilla
    Abstract: En este estudio se evalúa y cuantifica el cambio técnico en el sector regulado de las microfinanzas peruanas durante el periodo 2003 – 2015. Con información para 36 instituciones de microfinanzas (IMFs), fueron realizadas estimaciones siguiendo el enfoque estándar de incorporación de una variable de tendencia temporal en una función de costos translogarítmica. Los resultados, para la entidad microfinanciera promedio del sector, fueron significativos sólo para los años 2010 a 2015 y sugieren un deterioro técnico de tendencia creciente, que implicó un aumento de la tasa de crecimiento promedio anual de los costos de las IMFs, de 2.57% en el 2010 a 7.18% en el 2015. Este comportamiento es resultado de la existencia de una reversión técnica neutral creciente y significativa que compensó el ahorro de los costos generado por el cambio técnico asociado a cambios en la escala eficiente de producción. Las IMFs de mayor volumen de colocaciones, también exhibieron un deterioro técnico significativo pero este fue más extenso abarcando el periodo entre el 2005 y el 2010, mientras que para las IMFs medianas la reversión técnica sólo alcanzó valores significativos, entre el 2013 y el 2015. En el caso de las IMFs de menor volumen de colocaciones, no se encontró evidencia de la existencia de cambio técnico. JEL Classification-JEL: G21
    Keywords: Cambio técnico , Microfinanzas
    Date: 2017
  5. By: Minkyung Kim (School of Management, Yale University); K. Sudhir (Cowles Foundation & School of Management, Yale University); Kosuke Uetake (School of Management, Yale University); Rodrigo Canales (School of Management, Yale University)
    Abstract: At many firms, incentivized salespeople with private information about customers are responsible for CRM. While incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. We investigate the sales performance–moral hazard tradeoff in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, adverse selection effect of acquisition incentives overwhelms the sales enhancing effects, clarifying the importance of multidimensional incentives for CRM. Reducing private information (through job transfers) hurts customer maintenance, but has greater impact on productivity by moderating adverse selection at acquisition. The paper also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.
    Keywords: When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information
    Date: 2018–02
  6. By: Harounan Kazianga (Oklahoma State University); Zaki Wahhaj (University of Kent)
    Abstract: We present findings from a pilot study exploring whether and how existing ties between urban migrants and rural farmers may be used to provide the latter improved access to formal insurance. Urban migrants in Ouagadougou (the capital of Burkina Faso) originating from nearby villages were offered, at the prevailing market price, a rainfall index insurance product that can potentially protect their rural relatives from adverse weather shocks. The product had an uptake of 22% during the two-week subscription window. Uptake rates were higher by 17-22 ppts among urban migrants who were randomly offered an insurance policy that would make pay-outs directly to the intended beneficiary rather than the subscriber. We argue that rainfall index insurance can complement informal risk-sharing networks by mitigating problems of informational asymmetry and self-control issues.
    Keywords: Microinsurance markets, Indexed insurance, Rainfall, Migration, Informal insurance networks
    JEL: O15 O16 G21
    Date: 2018–03–15
  7. By: Nigus, Halefom (UNU-MERIT); Nillesen, Eleonora (UNU-MERIT); Mohnen, Pierre (UNU-MERIT)
    Abstract: In this study, using data from lab-in-the-field experiment, we explore whether the introduction of weather index insurance crowds in or crowds out social capital in northern Ethiopia. We use contributions in the public good game as a measure of social capital. We find that weather index insurance crowds out social capital. The free-riding problem created by the positive externality of weather index insurance and development of self-sufficiency behaviour are found to be the causal mechanisms behind the crowding out phenomenon. Our results indicate that formal insurance mechanisms do not occur in a vacuum and may have unintended effects. Hence, this study suggests that novel insurance product design and marketing strategies should be used to ameliorate such unintended effects.
    Keywords: Weather index insurance, social capital, public goods game, Ethiopia
    JEL: C93 G22 H41 O17
    Date: 2018–02–19

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