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Showing papers on "Microfinance published in 2010"


Journal ArticleDOI
TL;DR: In this article, the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection were investigated.
Abstract: Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

555 citations


Book ChapterDOI
TL;DR: In this article, the authors review recent innovations that are improving the quantity and quality of financial access, focusing on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk.
Abstract: Expanding access to financial services holds the promise to help reduce poverty and spur economic development. But, as a practical matter, commercial banks have faced challenges expanding access to poor and low-income households in developing economies, and nonprofits have had limited reach. We review recent innovations that are improving the quantity and quality of financial access. They are taking possibilities well beyond early models centered on providing “microcredit” for small business investment. We focus on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk. Our eye is on contract designs, product innovations, regulatory policy, and ultimately economic and social impacts. We relate the innovations and empirical evidence to theoretical ideas, drawing links in particular to new work in behavioral economics and to randomized evaluation methods.

404 citations


Book
10 Jun 2010
TL;DR: In this paper, the authors discuss the rise of micro-finance, its myths and realities, and the death of microfinance and the need for a new beginning in the future.
Abstract: 1 Introduction 2The rise of microfinance 3 Microfinance myths and realities 4 Microfinance as poverty trap 5 Commercialization: The death of microfinance 6 The politics of microfinance 7 Alternatives to conventional microfinance 8 Conclusion: the need for a new beginning Endnotes Bibliography Index

390 citations


Journal ArticleDOI
TL;DR: In this paper, a recent empirical study finds low returns to capital in female-run micro-enterprises and the primary barrier to female entrepreneurial success is limited demand for rather than supply of credit, with poor women lacking high-return means of expanding their businesses.
Abstract: What constrains the entrepreneurial choices of poor women? Do traditional institutions pose unique barriers to business growth and profitability for female-run enterprises? The explosion of microfinance programs, which typically target poor female entrepreneurs, has drawn attention to these questions. Indeed, one view is that inadequate access to credit prevents women from undertaking high-return business activities. However, one recent empirical study finds low returns to capital in female-run micro-enterprises (Suresh De Mel, David McKenzie and Christopher Woodruff 2008). Thus, another view is that the primary barrier to female entrepreneurial success is limited demand for rather than supply of credit, with poor women lacking high-return means of expanding their businesses. For instance, due to gender differences in education or business networks, women might be relatively uninformed about investment opportunities and untrained in basic cost-benefit analysis (Dean S. Karlan and Martin Valdivia 2008). A second possibility is that norms governing women’s roles in society limit women’s perceptions about what is achievable in the workplace. Even differences

336 citations


Journal ArticleDOI
TL;DR: In this article, a treatment effects model is employed to estimate the poverty-reducing effects of Micro Finance Institutions (MFIs) loans for productive purposes, such as investment in agriculture or non-farm businesses on household poverty levels.

335 citations


Journal ArticleDOI
TL;DR: In this paper, the authors introduce the topic of microfinancing to a wider audience of management researchers and identify opportunities for future research in this new and growing area, which is an emerging phenomenon that opens access to capital for individuals previously shut out from financial services.
Abstract: Executive Overview Microfinance is an emerging phenomenon that opens access to capital for individuals previously shut out from financial services. In its direct engagement with the poor, microfinance represents a new way for financial capital to potentially stimulate economic growth in developing countries. However, microfinance is poorly understood, and it remains unclear whether it delivers on its promises. The goal of this paper is to introduce the topic of microfinancing to a wider audience of management researchers and to identify opportunities for future research in this new and growing area.

274 citations


Posted Content
TL;DR: The micro finance revolution has allowed more than 150 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance as mentioned in this paper, and the idea of providing access to reliable and affordable financial services can have powerful economic and social effects.
Abstract: The microfinance revolution has allowed more than 150 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance. The idea that providing access to reliable and affordable financial services can have powerful economic and social effects has captured the imagination of policymakers, activists, bankers, and researchers around the world; the 2006 Nobel Peace Prize went to microfinance pioneer Muhammed Yunis and Grameen Bank of Bangladesh. This book offers an accessible and engaging analysis of the global expansion of financial markets in poor communities. It introduces readers to the key ideas driving microfinance, integrating theory with empirical data and addressing a range of issues, including savings and insurance, the role of women, impact measurement, and management incentives. This second edition has been updated throughout to reflect the latest data. A new chapter on commercialization describes the rapid growth in investment in microfinance institutions and the tensions inherent in the efforts to meet both social and financial objectives. The chapters on credit contracts, savings and insurance, and gender have been expanded substantially; a new section in the chapter on impact measurement describes the growing importance of randomized controlled trials; and the chapter on managing microfinance offers a new perspective on governance issues in transforming institutions. Appendixes and problem sets cover technical material.

266 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined whether access to and marketing of an individually held commitment savings product lead to an increase in female decision-making power within the household and found positive impacts, particularly for women who had below median decisionmaking power in the baseline.

254 citations


Journal ArticleDOI
TL;DR: In this paper, the authors present an executive summary of the African financial systems, highlighting some of the investment opportunities that exist, and then proceed with an in-depth review of the current state of the financial systems of the various subgroups in Africa.
Abstract: diverse, with different regional economic blocs The financial systems in these countries are as diverse as the countries Reviewing the financial systems of such a heterogeneous group of countries presents a challenge Therefore, to make the review more concise, we categorize the countries along geographic lines into four groups, namely, Arab North Africa, West Africa, East and Central Africa, and Southern Africa1 This review covers, among other things, a brief review of the economies, central banks, deposit-taking banks, non-bank institutions, such as the stock markets, fixed income markets, and microfinance institutions in Africa In this section, we present an executive summary of the African financial systems, highlighting some of the investment opportunities that exist, and then proceed with an in-depth review of the current state of the financial systems of the various sub-groups in Africa In section II, we review the financial systems in North Africa The financial systems in West Africa are reviewed in Section III, while those in Central and East Africa are reviewed in Section IV In Section V, we examine the financial systems in Southern Africa We conclude with a brief discussion of the risks that potential investors should be concerned about in Section VI

193 citations



Posted Content
TL;DR: In this paper, the authors review recent innovations that are improving the quantity and quality of financial access, focusing on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk.
Abstract: Expanding access to financial services holds the promise to help reduce poverty and spur economic development. But, as a practical matter, commercial banks have faced challenges expanding access to poor and low-income households in developing economies, and nonprofits have had limited reach. We review recent innovations that are improving the quantity and quality of financial access. They are taking possibilities well beyond early models centered on providing microcredit for small business investment. We focus on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk. Our eye is on contract designs, product innovations, regulatory policy, and ultimately economic and social impacts. We relate the innovations and empirical evidence to theoretical ideas, drawing links in particular to new work in behavioral economics and to randomized evaluation methods.

Journal ArticleDOI
TL;DR: In this article, the authors investigate the effect on small business finance of an alternative contractual scheme based on group lending, the Mutual Guarantee Institution (MGI), and test whether firms affiliated to MGIs pay less for credit, due to a joint responsibility that provides affiliates with peer monitoring incentives.

Journal ArticleDOI
TL;DR: In this paper, the authors used data on 217 micro-finance institutions in 101 countries distributed by region and type of MFIs over the period of 1998-2006, and found that a high quality credit portfolio, coupled with the application of sufficiently high interest rates that allow a reasonable profit and sound management are instrumental to the financial sustainability of MFI.
Abstract: Microfinance promises to trim down poverty. To achieve this noble objective microfinance institutions (MFIs) have to become steady profitable because donor constancy is not a given. Thus important question is: what factors drive the financial sustainability of MFIs? Using data on 217 MFIs in 101 countries distributed by region and type of MFIs over the period of 1998-2006, we report three important findings. First, we show that a high quality credit portfolio, coupled with the application of sufficiently high interest rates that allow a reasonable profit and sound management are instrumental to the financial sustainability of MFIs. Second, we show that the percentage of women among the clientele has a weak statistically non-significant negative effect on financial sustainability of MFIs. Third, we find that the client outreach of microfinance programs and the age of MFIs have a positive but lesser impact on attainment of financial sustainability. The policy implication is that MFIs have to emulate profit-making banking practices by implementing a sound financial management and good managerial governance to assure their financial sustainability.

Journal ArticleDOI
TL;DR: In this article, a comparison of performance of 202 MFIs in the period from 2001 to 2006 is made, and the results show that the performance of private corporations is better than that of NGOs only when portfolio quality is used as an indicator for measuring performance.

Journal ArticleDOI
TL;DR: In this article, the relationship between informal and formal lending in China with consideration of how the strength of informal lending might affect microcredit was investigated using original survey data from over 1500 farm households.

01 Feb 2010
TL;DR: In this paper, the authors describe the key contextual factors that affected the severity and spread of the credit delinquency crisis and break down the three internal industry vulnerabilities that lie at the heart of the problems.
Abstract: This focus note begins by briefly telling the story of recent growth in the four countries leading into the credit delinquency crises. The second section describes the key contextual factors that affected the severity and spread of the crises. The third section breaks down the three internal industry vulnerabilities that lie at the heart of the problems. This is followed by a discussion on how market infrastructure and tools can help to mitigate some of the dangers. The note concludes by placing these experiences within the broader context of the global microfinance story and makes recommendations to strengthen the industry.

Journal ArticleDOI
TL;DR: In this paper, the authors examined the cost efficiency of 39 micro-finance institutions across Africa, Asia and the Latin America using non-parametric data envelopment analysis and found that non-governmental microfinance organizations particularly; under production approach, are the most efficient and this result is consistent with their fulfillment of dual objectives: alleviating poverty and simultaneously achieving financial sustainability.
Abstract: This study examines the cost efficiency of 39 microfinance institutions across Africa, Asia and the Latin America using non-parametric data envelopment analysis. Our findings show non-governmental microfinance institutions particularly; under production approach, are the most efficient and this result is consistent with their fulfillment of dual objectives: alleviating poverty and simultaneously achieving financial sustainability. However, bank-microfinance institutions also outperform in the measure of efficiency under intermediation approach. This result reflects that banks are the financial intermediaries and have access to local capital market. It may be possible that bank-microfinance institutions may outperform the non-governmental microfinance institutions in the long run.

01 Jan 2010
TL;DR: In this paper, the effect of competition among micro-finance institutions (MFIs) on their performance is examined by constructing a Lerner index, which assess the effect that increased competition has on outreach, loan repayment, efficiency and financial performance.
Abstract: This paper examines the effect of competition among microfinance institutions (MFIs) on their performance. Specifically, by constructing a Lerner index, we assess the effect of increased competition on outreach, loan repayment, efficiency and financial performance. The empirical investigation is based on data from 362 MFIs in 73 countries for the period 1995-2009. Our constructed measure of competition reflects the general trend of competition in the microfinance market. The results show intense competition is, overall, negatively associated with performance of MFIs. However, ways that ensure lending standards, enhance information sharing and promote efficiency may help overcome the adverse effect of competition without risking growth of the microfinance sector.

Book
01 Jan 2010
TL;DR: In this paper, the authors present an overview of the state-of-the-art in the field of finance and finance management, focusing on the LeCraw Auditorium, College of Management building.
Abstract: Presented on August 26, 2010 at 4:30 pm in the LeCraw Auditorium, College of Management building.

01 Oct 2010
TL;DR: In this paper, a stocktaking exercise confirms the rise in various parts of the world of specific business models aimed at providing financial services to SMEs in a cost-effective manner.
Abstract: Small and medium enterprises (SMEs) play a major role in economic development, particularly in emerging countries. Access to finance remains a key constraint to SME development in emerging economies. Closing the credit gap for formal SMEs will be less daunting than for informal SMEs. The SME finance gap is the result of a mismatch between the needs of the small firms and the supply of financial services, which typically are easier for larger firms to access. Deficiencies in the enabling environment and residual market failures have motivated government interventions to foster SME access to financing. The stocktaking exercise confirms the rise in various parts of the world of specific business models aimed at providing financial services to SMEs in a cost-effective manner. Effective SME financing models can be implemented in different country and market environments, but greater outreach is achieved in the most developed environments for the financial sector. Although SME banking and microfinance models are successfully being rolled out in an increasing number of countries and regions, equity financing remains a challenge in developing economies. The role of international finance institutions (IFIs) and development finance institutions (DFIs) to foster SME financing in the developing world has been significant so far. Increasing access to finance can only be successful if qualitative aspects are taken into account.

Journal ArticleDOI
TL;DR: It is suggested that microcredit is not the best livelihood option to reduce risk among adolescent girls in this context and lack of adequate support means that loan repayment and business success was poor.
Abstract: This study tested the feasibility of a combined microcredit and life-skills HIV prevention intervention among 50 adolescent female orphans in urban/peri-urban Zimbabwe. Quantitative and qualitative data were collected on intervention delivery, HIV knowledge and behavior, and economic indicators. The study also tested for HIV, HSV-2, and pregnancy. At 6 months, results indicated improvements in knowledge and relationship power. Because of the economic context and lack of adequate support, however, loan repayment and business success was poor. The results suggest that microcredit is not the best livelihood option to reduce risk among adolescent girls in this context.

Journal ArticleDOI
TL;DR: In this article, the authors assess the potential of Islamic financing schemes for micro-financing purposes for furthering socio-economic development of the poor and small entrepreneurs without charging interest (read: riba').
Abstract: Purpose – The purpose of this paper is to assess the potential of Islamic financing schemes for microfinancing purposes.Design/methodology/approach – The paper contends that Islamic finance has an important role to contribute for furthering socio‐economic development of the poor and small (micro) entrepreneurs without charging interest (read: riba').Findings – Islamic finance offers various ethical schemes and instruments that can be advanced and adapted for the purpose of microfinance. Comparatively, qardhul hasan, murabahah, and ijarah schemes are relatively easy to manage and will ensure the capital needs (qardhul hasan), equipments (murabahah) and leased equipments (ijarah) for potential micro‐entrepreneurs and the poor. Participatory schemes such as mudarabah and musharakah, on the other hand, have great potentials for microfinance purposes as these schemes can satisfy the risk sharing needs of the micro‐entrepreneurs.Research limitations/implications – The paper is only conceptual and does not aim t...


Journal ArticleDOI
Shah Nawaz1
TL;DR: A village study in Bangladesh found that microfinance has resulted in a moderate reduction in the poverty of borrowers, as measured by a variety of socio-economic indicators, but has not reached many of the poorest in the village.
Abstract: To evaluate the competing claims on the impact of microfinance programs on multidimensional poverty, a village study in Bangladesh was conducted where three microfinance programs had been operating for more than five years The study found that microfinance has resulted in a moderate reduction in the poverty of borrowers, as measured by a variety of socio-economic indicators, but has not reached many of the poorest in the village To make microfinance a more effective means of poverty reduction other services such as skills training, technological support, education and health related strategies should be included with microfinance

Journal ArticleDOI
TL;DR: The authors examines informal and formal finance for incremental housing and makes recommendations for the vast expansion necessary to meet the affordable housing demand from the huge urban wave in developing countries projected over the next three decades.

Journal ArticleDOI
TL;DR: In this paper, the implications of imposed institutional discipline when donors adopted a new approach regarding the sustainability of Microfinance Institutions (MFIs), they transformed the intervention structure and created drastic shift in the microfinance sector.
Abstract: This chapter concerns about the implications of imposed institutional discipline When donors adopted a new approach regarding the sustainability of Microfinance Institutions (MFIs), they transformed the intervention structure and created drastic shift in the microfinance sector The chapter proposes to launch the debate by concentrating on the Indian microfinance sector with a special focus on the State of Andhra Pradesh It lay outs to what extent one can talk about the microfinance sector being dependent on donors The chapter revisits the microfinance crisis that erupted in India in March 2006 by explaining the facts and interpretations given by the various actors in the sector It raises some caution regarding the overwhelming push for MFIs to become financially self-sustainable, a push often than not exerted by donor organizations Such a push has severe consequences, ranging from a substantial one such as a mission drift to the questionable practices employed by institutions Keywords:Andhra Pradesh; microfinance institutions (MFIs); mission drift

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the extent to which the micro finance revolution is truly revolutionary and explored the impact of micro finance on the poor, the mechanisms underlying high repayment rates and their innovations, and the new challenges micro finance institutions are currently facing.
Abstract: “Microfinance revolution” is the term often applied to the successful expansion of small-scale financial services to the poor with high repayment records in developing countries. The present paper investigates the extent to which the microfinance revolution is truly revolutionary. More specifically, it explores the impact of microfinance institutions on the poor, the mechanisms underlying high repayment rates and their innovations, and the new challenges microfinance institutions are currently facing. Different from the existing published survey literature, we focus on current topics and attempt to show recent theoretical developments in a comprehensive manner using simplified models with very similar settings. We contend that microfinance is developing in a promising direction but has yet to reach its full potential.

Journal ArticleDOI
TL;DR: This article showed that the expected borrower welfare is strictly higher with group lending when both group and individual lending are feasible and when group lending is feasible for a greater range of opportunity cost of capital.

Posted Content
TL;DR: In this paper, a simple model of household bargaining is proposed to examine how providing women with credit affects production and decision-making power in the household, and the authors show that the introduction of a micro-credit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women.
Abstract: In the past 30 years, microfinance has carried many promises of social and economic transformation, with the shift towards targeting women being seen as a major strategic move through which the promise of social development could be most effectively delivered. However, ethnographic studies have shown that many women relinquish the use of their loans to male members of the household, belying the empowering promise of microfinance. We propose a simple model of household bargaining which examines how providing women with credit affects production and decision-making power in the household. Following Bergstrom (1996), we account for the roles of both divorce and non-cooperation in the household as relevant fall-back options in the bargaining strategy of each spouse. We show that the introduction of a microcredit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women. We demonstrate that access to credit allows a woman to strengthen her bargaining position through an expansion of her autonomous activities (the causal mechanism hoped for) only in a limited number of cases: when she is able to invest her new capital profitably in an autonomous activity, and her husband has no alternative activity in which the same capital would generate comparable returns, or lacks the power to overrule her preferred investment choice. The two cases in which it is most likely that the availability of credit would enable the woman to strengthen her bargaining position within the household are (i) when capital can be invested in a cooperative activity to which both spouses contribute in an important way, and (ii) when a large share of the household budget is devoted to expenditures on household public goods.

Report SeriesDOI
01 Jul 2010
TL;DR: In this article, the authors analyse the lending portfolios of the 22 leading micro-finance institutions in two climate vulnerable countries (Bangladesh and Nepal) to assess the synergies and potential conflicts between microfinance and adaptation.
Abstract: Much of the current policy debate on adaptation to climate change has focussed on estimation of adaptation costs, ways to raise and to scale-up funding for adaptation, and the design of the international institutional architecture for adaptation financing. There is however little or no emphasis so far on actual delivery mechanisms to channel these resources at the sub-national level, particularly to target the poor who are also often the most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This paper offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of the 22 leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal - are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The two countries had also been previously examined as part of an earlier OECD report on the links between macro-level Official Development Assistance and adaptation. This analysis provides a complementary "bottom-up" perspective on financing for adaptation. Insights from this analysis also have implications for OECD countries. This is because microfinance is also being increasingly tapped to reduce the vulnerability of the poor in domestic OECD contexts as well and may therefore have the potential to contribute to adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context. It also explores the linkage between the top-down macro-financing for adaptation through international financial mechanisms and the bottom-up activities that can be implemented through microfinance.