nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒04‒23
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Will Urban Migrants Formally Insure their Rural Relatives? Family Networks and Rainfall Index Insurance in Burkina Faso By Kazianga, Harounan; Wahhaj, Zaki
  2. Credit Risk in African Microfinance Institutions: Correlates and International Comparisons By Eliud Moyi; Eftychia Nikolaidou

  1. By: Kazianga, Harounan; Wahhaj, Zaki
    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 percentage points 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
  2. By: Eliud Moyi (School of Economics, University of Cape Town); Eftychia Nikolaidou (School of Economics, University of Cape Town)
    Abstract: Credit risk in African microfinance institutions seems to be rising, and the financial health of these institutions is becoming an issue of concern. Given this trend, this study seeks to unravel the factors that explain variations in credit risk in sub-Sahara African MFIsand, if such factors exist, to establish whether they have the same effects on credit risk in other developing regions. The study approach accommodates dynamic panel bias by applying system generalised method of moments estimators. Results suggest that the main predictors of credit risk in sub-Saharan Africa are lagged credit risk, loan growth, provision for loan impairment, GDP per capita growth and ease of getting credit. In addition, the study identifies threshold effects in the relationship between credit risk and loan growth. Credit risk falls with loan growth until a trough at 36.8% when this relationship is reversed.Further results from regional comparisons suggest that credit risk is most persistent in East Asia and the Pacific but least persistent in Sub-Saharan Africa.
    Date: 2018

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