nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒04‒30
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets By Marshall Burke; Lauren Falcao Bergquist; Edward Miguel
  2. Dangers of a Double-Bottom Line: A Poverty Targeting Experiment Misses Both Targets By Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
  3. Business Training and Loan Repayment: Theory and Evidence from Microcredit in France By Renaud Bourlès; Anastasia Cozarenco; Dominique Henriet; Xavier Joutard

  1. By: Marshall Burke; Lauren Falcao Bergquist; Edward Miguel
    Abstract: Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to "sell low and buy high" rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit's effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions.
    JEL: D21 D51 G21 O13 O16 Q12
    Date: 2018–04
  2. By: Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
    Abstract: Two for-profit Philippine social enterprises, aiming to demonstrate corporate social responsibility by increasing microlending to the poor, incorporated a widely-used poverty measurement tool into their loan applications and tested the tool using randomized training content. Treated loan officers were instructed why and how to use the tool for targeting; control group training merely labelled the tool "additional household information". The targeting training backfired, leading to no additional poor applicants and lower-performing loans. Descriptive evidence suggests the targeting training exacerbated loan officer misperceptions and multitasking problems. Our results help explain why corporate social responsibility efforts are often siloed from core operations.
    Keywords: Corporate social responsibility; discrimination; double-bottom line; microcredit; Microfinance; Multi-tasking; poverty targeting; social business
    JEL: D12 D22 D92 G21 O12 O16
    Date: 2018–04
  3. By: Renaud Bourlès (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Anastasia Cozarenco (Montpellier Business School and CERMi); Dominique Henriet (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Xavier Joutard (Aix-Marseille University, CNRS, LEST and OFCE)
    Abstract: Although most Microfinance Institutions (MFIs) invest in non-financial services such as business training, empirical evidence on the impact of training on microborrowers’ performance is at best mixed. We address this issue by accounting for business training allocation and its possible effects on borrowers’ behavior. We first show empirically (using data from a French MFI) that the relationship between business training allocation and borrowers’ risk is complex and non- linear. By taking this into account, we establish a positive effect of business training on the survival time of loans. These results are robust to controlling for the MFI’s selection process. We moreover propose a theoretical explanation for the non-linear relationship between borrowers’ risk and training allocation based on reverse asymmetric information, showing that it can lead to increased MFI outreach.
    Keywords: microcredit, business training, reverse asymmetric information
    JEL: C34 C41 D82 G21
    Date: 2018–03

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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