nep-mfd New Economics Papers
on Microfinance
Issue of 2020‒01‒20
eleven papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Decentralized Targeting of Agricultural Credit Programs: Private versus Political Intermediaries By Maitra, Pushkar; Mitra, Sandip; Mookherjee, Dilip; Visaria, Sujata
  2. Inventory credit to enhance food security in Africa By Tristan Le Cotty; Elodie Maitre d'Hotel; Subervie Julie
  3. Rural Transformation, Inequality, and the Origins of Microfinance By Marvin Suesse; Nikolaus Wolf
  4. Microfinance in the Global South: Examining Evidence on Social Efficacy By Ranjula Bali Swain; Supriya Garikipati
  5. Social Collateral Model for Islamic Microfinance By Kamaluddin, Amrizah; Hadi, Nabawiyah Abdul; Alam, Md. Mahmudul; Adil, Mohamed Azam Mohamed
  6. An Estimation of Market Size for Microfinance: Study on the Urban Microentrepreneurs in Selangor, Malaysia By Hassan, Salwana; Alam, Md. Mahmudul; Rahman3, Rashidah Abdul
  7. Performance of Islamic microcredit in perspective of Maqasid Al-Shariah: case study on Amanah Ikhtiar Malaysia By Said, Jamaliah; Hassan, Salwana; Alam, Md. Mahmudul
  8. Questioning Bangladesh's Microcredit By Molla, Rafiqul Islam; Alam, Md. Mahmudul; , Abu N.M. Wahid
  9. A Reflection on Economics of Microcredit Borrowing in Rural Bangladesh By Molla, Rafiqul Islam; Alam, Md. Mahmudul
  10. Mobile Money access and usage among the rural communities in Zimbabwe By Dube, Thulani; Chummun, Bibi Zaheenah
  11. Local ambassadors promote mobile banking in Northern Peru By Marcos Agurto; Habiba Djebbari; Sudipta Sarangi; Brenda Silupu; Carolina Trivelli; Javier Torres

  1. By: Maitra, Pushkar; Mitra, Sandip; Mookherjee, Dilip; Visaria, Sujata
    Abstract: We compare two different methods of appointing a local commission agent as an intermediary for a credit program. In the Trader-Agent Intermediated Lending Scheme (TRAIL), the agent was a randomly selected established private trader, while in the Gram Panchayat-Agent Intermediated-Lending Scheme (GRAIL), he was randomly chosen from nominations by the elected village council. More TRAIL loans were taken up, but repayment rates were similar, and TRAIL loans had larger average impacts on borrowers’ farm incomes. The majority of this difference in impacts is due to differences in treatment effects conditional on farmer productivity, rather than differences in borrower selection patterns. The findings can be explained by a model where TRAIL agents increased their middleman profits by helping more able treated borrowers reduce their unit costs and increase output. In contrast, for political reasons GRAIL agents monitored the less able treated borrowers and reduced their default risk.
    Keywords: Targeting, Intermediation, Decentralization, Community Driven Development, Agricultural Credit, Networks
    JEL: H42 I38 O13 O16 O17
    Date: 2020–01
  2. By: Tristan Le Cotty (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Elodie Maitre d'Hotel (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Subervie Julie (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: In many African countries, rural households typically sell their output immediately after harvest and then have to face the lean season in often dramatic conditions. This paper explores whether alleviating both credit and storage constraints through an inventory credit (or warrantage) program in Burkina Faso is associated with improvements in household food insecurity and dietary diversity. We partnered with a rural bank and a nation-wide organization of farmers to evaluate a warrantage system with seventeen villages in the western region of Burkina Faso. In randomly chosen treatment villages, the households were offered a loan in exchange for storing a portion of their harvest as a physical guarantee in one of the newly-built warehouses of the project. We show that, after three seasons, the warrantage program has extended users' self-subsistence period by an average of seventeen days, increased the average size of the farmby one and a half hectares (one additional hectare of cotton and one additional half hectare of maize) and increased dietary diversity significantly, with more fish, fruit and oil consumed weekly.
    Keywords: inventory credit,warrantage,savings,storage,intertemporal price fluctuations
    Date: 2019
  3. By: Marvin Suesse; Nikolaus Wolf
    Abstract: What determines the development of rural financial markets? Starting from a simple theoretical framework, we derive the factors shaping the market entry of rural microfinance institutions across time and space. We provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of Prussia between 1852 and 1913. This setting is attractive as it provides a free market benchmark scenario without public ownership, subsidization, or direct regulatory intervention. Furthermore, we exploit features of our historical set-up to identify causal effects. The results show that declining agricultural staple prices, as a feature of structural transformation, leads to the emergence of credit cooperatives. Similarly, declining bank lending rates contribute to their rise. Low asset sizes and land inequality inhibit the regional spread of cooperatives, while ethnic heterogeneity has ambiguous effects. We also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs.
    Keywords: microfinance, credit cooperatives, rural transformation, land inequality, Prussia
    JEL: G21 N23 O16 Q15
    Date: 2019
  4. By: Ranjula Bali Swain; Supriya Garikipati
    Date: 2019–09
  5. By: Kamaluddin, Amrizah; Hadi, Nabawiyah Abdul; Alam, Md. Mahmudul (Universiti Utara Malaysia); Adil, Mohamed Azam Mohamed
    Abstract: This study examines the social collateral model for Islamic microfinance in Malaysia. Using qualitative instruments on academics and officers of microfinance institutions as the sample study, this study identifies the components that should be included in the social collateral model for Islamic microfinance. Based on interviews and focus group discussions, this study found that similar to the conventional microfinance, the Islamic microfinance also include social capital, group pressure, entrepreneurship skills, and culture as the components of the social collateral model. In addition, this study found that religiosity represents another important component of the social collateral model for Islamic microfinance
    Date: 2019–02–28
  6. By: Hassan, Salwana; Alam, Md. Mahmudul (Universiti Utara Malaysia); Rahman3, Rashidah Abdul
    Abstract: Malaysia is a fast growing developing country where majority of the people are Muslim. Due to the religious bindings, Muslim prefers Shariahcompliant Islamic credits instead of conventional interest based credits. At the same time, non-Muslims can also consider Shariahcompliant Islamic credit because it is considered as the ethical credit. However, still many microentrepreneurs are not receiving the Shariahcompliant Islamic microfinance products because they have negative perceptions about the credit andinterest (riba). Therefore, this study aims to assess the demand for microfinance among the microentrepreneurs in the State of Selangor, Malaysia and thus, determine the potential market size. Data of the study were collected based on a questionnaire survey from 550 microentrepreneurs from the urban areas of Selangor. It was found that only 12.2 per cent of them received microfinance from various microfinance institutions and banks. However, the study found that still there is potential for microfinance borrowing with around 55,000-128,000 microenterprises in Selangor, Malaysia. Therefore, Islamic microfinance institutions should try to expand their market size by promoting these potential microfinance borrowers among the existing microentrepreneurs.
    Date: 2019–02–28
  7. By: Said, Jamaliah; Hassan, Salwana; Alam, Md. Mahmudul (Universiti Utara Malaysia)
    Abstract: Many studies have evaluated the role of microcredit programs using the conventional assessment approach. However, the conventional system of socioeconomic role assessment cannot evaluate the performance of Islamic microcredit in terms of achieving the objectives of Shariah for the Islamic microcredit model. Therefore, this study examines the role of Islamic microcredit based on the achievement of Maqasid Al-Shariah. It uses primary data that were collected through a questionnaire survey distributed among 393 microcredit borrowers from Amanah Ikhtiar Malaysia (AIM). The survey was conducted from July 2013 to December 2013 in the State of Sabah and in Peninsular Malaysia. This research also analyzes the socioeconomic roles and the achievement of microcredit and microenterprise from the perspective of the five principles of Al-daruriyyat from Maqasid Al-Shariah. Results indicate that the microcredit program of AIM has a positive and enhancing effect on the livelihood of clients. This effect is reflected in the assessment of their well-being, especially in the context of Maqasid Al-Shariah.
    Date: 2019–02–28
  8. By: Molla, Rafiqul Islam; Alam, Md. Mahmudul (Universiti Utara Malaysia); , Abu N.M. Wahid
    Abstract: The microcredit (MC) program of Bangladesh has been a well-known success story for generation of self-employment, and poverty alleviation. Variants of this MC model are being implemented in more than 60 different countries of the world. It has become almost a universal antidote for poverty especially from 2006 when Professor Muhammad Yunus- the founder of the Grameen Bank (GB) and the bank itself shared the Nobel peace prize. Although the GB is the pioneer of MC program in Bangladesh, there are many other non-governmental organizations (NGO)s that offer the same program in Bangladesh in different forms and names. The providers of MCs claim that the overwhelming majority of the borrowers are using the loan funds profitably for productive purposes, repaying the loans and interest regularly, and thus improving their socio-economic conditions steadily. The findings of the present study are somewhat contrary and disturbing to the claim of the MC programs. This study finds that a bulk of the MC is borrowed for non productive purposes. About one quarter of the borrowers use the credit exclusively for consumption and debt repayment purposes. Nearly half of them use the credits entirely for investment purposes. For all, the return on investment is very meager. About two-third of the borrowers, on average have an impressive 83% net return on investment available for payment of interest and dividend in addition to the principal. But in case of as high as one third of them, average return on investment is not enough even to cover the most minimum or tolerance level of wages for family labors, let alone paying any interest and making any profit after keeping aside the principal.
    Date: 2019–02–20
  9. By: Molla, Rafiqul Islam; Alam, Md. Mahmudul (Universiti Utara Malaysia)
    Abstract: There is no room for denying the critical importance of microcredit for economic emancipation of rural poor in Bangladesh or any such other country. In analyzing the effectiveness of microcredit program the microcredit providers (NGOs) use accounting profit of the borrowers’ enterprises ignoring implicit costs on the plea that the opportunity cost of labor is near zero in those countries. This plea is certainly not tenable. In this research we use the principle of economic profit taking into account the implicit cost of family labor. From the results of this pilot study we get the reflection that a bulk of the microcredit is borrowed for non productive purposes. As high as 24% of borrowers used the credit exclusively for consumption and debt repayment purposes, and therefore demand for payment of interest from them is nonsensical. Only 48 % of the borrowers used the credits entirely for investment purposes. However, they are faced with very low-return investment opportunities in rural areas. About 68% of them on average had an impressive 83% net return on investment available for payment of interest and dividend. But in case of as high as 32% of them average return on investment was not enough even to cover the most minimum or tolerance level of wages for family labors. In their cases any payment of interest for capital has to be at the expense of the sacrifice of this subsistence level wages of the family labors. They are trapped in a vicious circle of loans. In the absence of a built in mechanism for debt relief they have no scope to be freed from this bondage of debt. An Islamic microcredit model based on Mudarabah principle (whereby the lender and borrower share the business surplus/profit on an agreed ratio, but in case of loss the lender alone bears the loss) may be a better alternative for them. There are indications that it requires an investment of around Tk 12,000 for creating job opportunity for one rural labor for the whole year.
    Date: 2019–02–20
  10. By: Dube, Thulani; Chummun, Bibi Zaheenah
    Abstract: The study sought to determine the level of mobile money access and usage among the rural households in Zimbabwe. A descriptive research design was employed in a mixed method research approach. The study population comprised of all rural districts in the Midlands Province and the target population was 8258 rural households. A sample size of 367 household heads was determined in the Kwekwe Rural District. A questionnaire was used as a data collecting instrument. The results of the study revealed a moderate use of mobile money by rural households. The widely used service was the funds transfer services (sending and receiving) with a mean score of 1.81. Mobile money was used as a vehicle of remitting funds. More over mobile money had improved access to financial services as indicated by the reduced distances walked to access the nearest mobile money agents. Majority of the users were walking distances of less than 10km to access the service. When assessing the demographic influences on the use of mobile money, an association between education and mobile money use was supported by a Pearson Chi-Square value of 62.803 at p value 0.000.
    Keywords: Mobile money, low-income rural households, access, usage
    JEL: O1
    Date: 2019–12–03
  11. By: Marcos Agurto (Universidad de Piura); Habiba Djebbari (Aix-Mareseille Universite); Sudipta Sarangi (Virginia Tech); Brenda Silupu (Universidad de Piura); Carolina Trivelli (Instituto de Estudios Peruanos); Javier Torres (Universidad del Pacifico)
    Abstract: We experiment with a novel way to boost information acquisition that exploits existing social ties between the promoter of a new financial technology and community members. We offer information and training workshops on a new mobile-money platform in periurban and rural areas in Peru. In the treatment group, workshops are led by promoters who are personally known to the invited participants. In the control group, comparable individuals are invited to attend similar workshops, but the workshops are led by agents external to the community. Our findings suggest that lack of information impedes product adoption, which is itself limited by lack of trust in the individual who provides the information.
    Keywords: Financial inclusion, social networks, information transmission, trust
    JEL: D91 G23 I22 I31 O33
    Date: 2020–01

This nep-mfd issue is ©2020 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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