nep-mfd New Economics Papers
on Microfinance
Issue of 2022‒08‒15
two papers chosen by
Olivier Dagnelie
Université de Pau et des Pays de l’Adour

  1. Stepping Stone: The Logic of Financial Inclusion through Microcredit in Rural China By Nan Zhou; Wenli Cheng; Longyao Zhang
  2. Household Welfare Effects of ROSCAs By Pushkar Maitra; Ray Miller; Ashish Sedai

  1. By: Nan Zhou (College of Finance, Nanjing Agricultural University); Wenli Cheng (Department of Economics, Monash University); Longyao Zhang (College of Finance, Nanjing Agricultural University)
    Abstract: This paper studies the effect of microcredit on a rural household’s subsequent access to bank loans. Based on a 2018 survey of rural households in 6 Chinese provinces, we find that microcredit served as a stepping stone to bank credit: participation in microcredit improved a household’ probability of obtaining bank loans in the following year by 4.9 percentage points. Notably, the stepping effect was present for both the relatively wealthy households and poor households, if we measure wealth by households’ social capital and assets. We identify two mechanisms behind the stepping stone effect. First, the experience of microcredit instilled confidence in households, which helped to turn their hidden demand for bank credit into effective demand. Second, since microcredit records were included in the National Credit Information System, participation in microcredit in effect enabled households to provide banks with creditable and easily discoverable information about their creditworthiness, which greatly improved their chances of obtaining bank loans.
    Keywords: Microcredit, stepping stone effect, credit graduation, financial inclusion
    JEL: G21 O16
    Date: 2022–07
  2. By: Pushkar Maitra (Department of Economics, Monash University); Ray Miller (Department of Economics, Colorado State University); Ashish Sedai (Department of Economics, College of Business, University of Texas at Arlington)
    Abstract: We examine the effects of Rotating Savings and Credit Associations (ROSCAs) on house- hold welfare in India. The identification strategy is based on household fixed effects and instrumental variables (using the geographic leave-one-out instrument). We find that ROSCA membership increases household assets, consumption, energy efficiency and school expenditure, but only in rural areas. Welfare effects are stronger for poorer households and for those living in communities with stronger social ties. We argue that the persistence and success of ROSCAs depends on social ties, which are often stronger in rural communities.
    Keywords: ROSCA, Household Welfare, Community Bonding
    JEL: O12 C26 C33
    Date: 2022–07

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