nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒05‒28
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Financial Constraints to SMME Growth: Investigating the Moderating Effect of Microfinance By Nasraldin Omer; Ricardo M. Peters; Kobus Visser
  2. The Contribution of Formal and Non-formal Finance to Household Welfare: Evidence from South Africa By Lwanga Elizabeth Nanziri
  3. How does access to formal finance affect household welfare dynamics? Micro evidence from Nigeria By Olabimtan Adebowale and David Lawson
  4. Does access to formal finance matter for stimulating entrepreneurship in developing countries? Evidence from non-farm entrepreneurial activities in Nigeria By Olabimtan Adebowale and David Lawson
  5. Does Workfare Work Well? The Case of the Employment Generation Program for the Poorest in Bangladesh By Cho, Yoon Y.; Ruthbah, Ummul

  1. By: Nasraldin Omer (Sudan University of Science and Technology); Ricardo M. Peters (University of the Western Cape); Kobus Visser (University of the Western Cape)
    Abstract: Small, Medium and Micro Enterprises (SMME) play a significant role in an economy. SMMEs are an important source of jobs, entrepreneurial spirit and innovation. However, despite the noted contribution of SMMEs, in many countries they face serious constraints, often resulting in failure. The constraints and economic environment have significant and unequal effects on SMMEs in different industries and in different locations. Constraints have been used, amongst other growth factors, to understand why some SMMEs fail to grow. The aims of this study was to examine the effect of financial constraints on SMME growth and to investigate the moderating effect of microfinance on overcoming, avoiding or mitigating the financial constraints to SMME growth. The study found evidence that the lack of professional financial advisors, lack of access to finance and lack of awareness of financial services and assistance were significant constraints to SMME growth in South Africa.
    Keywords: SMME growth, financial constraints, microfinance, moderating effect, South Africa
    Date: 2018–03
  2. By: Lwanga Elizabeth Nanziri
    Abstract: Access to finance has been identified as a tool in the fight against poverty and inequality. While efforts have been made to ensure that affordable formal financial services are accessible, the use of alternative non-formal mechanisms persists in many developing economies and thus compromises the potential gains from financial inclusion. Using a dataset from the FinScope surveys on South Africa, this paper investigates whether welfare outcomes of users of formal financial services and users of alternative non-formal financial services differ. Results, based on panel and treatment effect techniques show that the use of formal and semi-formal financial services leads to positive and significant welfare outcomes which are measured using an asset and well-being index. While these positive outcomes persist beyond the immediate period following the use of formal financial services, there is no such effect when one uses non-formal financial services. An attempt is made to contextualise these results for financial inclusion.
    Keywords: Financial Inclusion; Recentered Influence Function; Social Grants; South Africa; Welfare
    JEL: G2 I3
    Date: 2018
  3. By: Olabimtan Adebowale and David Lawson
    Abstract: Abstract The relationship between access to formal finance and poverty reduction lies at the heart of the development literature and policy discourse, particularly in developing countries, where access to financial services is often argued to have poverty-alleviating potential. Most of the stylised theoretical literature and empirical evidence, however, focus their efforts on the poverty-alleviating potential of access to finance at a given point in time, which ignores the dynamic and multidimensional nature of poverty. Using a nationally representative panel data set of households, this paper explores the effect of access to formal finance on household welfare dynamics in Nigeria between 2010–11 and 2012–13. Applying a bivariate probit model, which addresses the endogenous selection associated with households’ initial welfare status, our estimates indicate that controlling for the exogeneity of initial household status is relevant when exploring the implications of access to finance for welfare dynamics in Nigeria, as the exogenous treatment of the initial conditioning may distort the correlation coefficients of our estimates. Our results suggest that access to formal finance has poverty-reducing effects, as we found that initially poor households with access to finance were less likely to remain poor in the subsequent period. Also, initially non-poor households with access to finance were seen to face a lower probability of descending into poverty over the period, thus suggesting that access to finance plays a significant role in reducing transient poverty.
    Date: 2018
  4. By: Olabimtan Adebowale and David Lawson
    Abstract: Abstract The role of finance in stimulating entrepreneurship in developing countries is well documented. However, the specific impact of finance on part-time entrepreneurship is less well known. Drawing on the entrepreneurship discourse that self-employment is not a sufficient measure of entrepreneurship in developing countries, this study extends the finance–poverty debate by investigating the impact of finance on households’ part-time and self-employed entrepreneurship choices. It also examines the role of external finance in enterprise growth, with a focus on the ‘missing lower-end’ of the industrial scale. Using Nigeria Living Standard Measurement Study (LSMS) surveys, our analysis suggests heterogeneity in the effects of finance on households’ non-farm entrepreneurial choices, with part-time entrepreneurs more likely to be financially constrained. The empirical evidence shows that self-employed entrepreneurs are seemingly not financially constrained. This is, however, not to say that self-employed entrepreneurs are not financially constrained; it may just be that they are concentrated in the informal sector or less capital-intensive sectors of the economy. The results also show that, contrary to findings in previous studies, external finance does not strongly explain household enterprise growth. The results are robust to the use of an alternative econometric approach on identical models and specifications. The policy implication is that improving access to formal financial services may not, on its own, be sufficient to drive the structural transformation process without the integration of the informal financial sector into the mainstream financial system.
    Date: 2018
  5. By: Cho, Yoon Y. (World Bank); Ruthbah, Ummul (University of Dhaka)
    Abstract: Evidence on the effectiveness of workfare as an anti-poverty program in developing countries is weak compared with the relatively well-established role of public works during economic crisis as a social safety net. This paper contributes to evidence building by examining the impact of a large-scale workfare program in Bangladesh, the Employment Generation Program for the Poorest. Taking advantage of the program's distinguishable feature of direct wage transfer to a person's bank account, the paper uses accessibility to local banks as an instrumental variable to identify the program's impacts on rural social assistance beneficiaries. Based on locality-by-time fixed effects models over two rounds of locality panel data, the analysis finds that the Employment Generation Program for the Poorest has contributed to increasing overall household consumption and reducing outstanding loans. In particular, expenditures on quality food and health care have significantly increased, which likely helps individuals continue to engage in income-generating activities in the labor market. However, the implementation costs and poor quality of public assets built through work projects could potentially undermine the program's efficiency. Moreover, further evidence is required on the impacts of work experience through workfare on subsequent labor market outcomes and the value of public assets, to assess the program's effectiveness compared with administratively simpler alternative instruments such as unconditional cash transfers.
    Keywords: social assistance, workfare, public works, Bangladesh, poverty, consumption
    JEL: I32 O12 I38 O20
    Date: 2018–04

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