Showing papers on "Microfinance published in 2011"

Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

Abstract: Can one teach basic entrepreneurship skills, or are they fixed personal characteristics? Most academic and development policy discussions about microentrepreneurs focus on their access to credit, and assume their human capital to be fixed. The self-employed poor rarely have any formal training in business skills. However, a growing number of microfinance organizations are attempting to build the human capital of micro-entrepreneurs in order to improve the livelihood of their clients and help further their mission of poverty alleviation. Using a randomized control trial, we measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty to sixty minute entrepreneurship training sessions during their normal weekly or monthly banking meeting over a period of one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments. We find that the treatment led to improved business knowledge, practices and revenues. The program also improved repayment and client retention rates for the microfinance institution. Larger effects found for those that expressed less interest in training in a baseline survey. This has important implications for implementing similar market-based interventions with a goal of recovering costs.

Microfinance and Its Discontents: Women in Debt in Bangladesh

Abstract: Preface Abbreviations Introduction: Neoliberalism, Microfinance, and Women's Empowerment 1. The Structural Transformation of the NGO Sphere 2. The Research Terrain 3. The Everyday Mediations of Microfinance 4. The Social Life of Debt 5. NGOs, Clergy, and Contested "Democracy" 6. Power/Knowledge in Microfinance Conclusion: From Disciplined Subjects to Political Agents? Glossary of Bengali Words Notes Index

On Mission Drift in Microfinance Institutions

Abstract: This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as a “mission drift”: A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling–up. We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty–oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of “progressive lending” nor because of “cross–subsidization” but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific characteristics pertaining the heterogeneity of their clientele. In a simple one-period framework we pin-down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their mission. Because existing empirical studies cannot tear apart between mission drift and cross-subsidization, these studies should not guide donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in tearing apart cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia.

Due Diligence: An Impertinent Inquiry into Microfinance

Abstract: The idea that small loans can help poor families build businesses and exit poverty has blossomed into a global movement. The concept has captured the public imagination, drawn in billions of dollars, reached millions of customers, and garnered a Nobel Prize. Radical in its suggestion that the poor are creditworthy and conservative in its insistence on individual accountability, the idea has expanded beyond credit into savings, insurance, and money transfers, earning the name microfinance. But is it the boon so many think it is? Readers of David Roodman's openbook blog will immediately recognize his thorough, straightforward, and trenchant analysis. Due Diligence , written entirely in public with input from readers, probes the truth about microfinance to guide governments, foundations, investors, and private citizens who support financial services for poor people. In particular, it explains the need to deemphasize microcredit in favor of other financial services for the poor.

Impact of microcredit in rural areas of Morocco: Evidence from a Randomized Evaluation

Abstract: Policy motivation. Despite claims that microcredit is one of the most powerful tools to alleviate poverty, the evidence on its impact remains scarce, and there is considerable debate on its impacts: does it help the poor or does it hurt them by trapping them in cycles of indebtedness? This study is the first randomized evaluation of a microcredit program conducted in a rural area where there is almost no other credit access (two other recent randomized evaluations provide evidence in dense urban settings where households had access to other sources of credit). Microcredit expanded in Morocco during the second half of the 90s, and today Morocco is one of the countries with the highest number of clients in the North Africa and Middle East region. Al Amana expansion to non-densely populated areas gives the opportunity to analyze the impact of microcredit basic product, the group-liability loan first introduced by Grameen Bank, in a context in which microcredit was almost inexistent and the use of both formal and informal lending was very low.

Competitive advantage: mediator of intellectual capital and performance

Abstract: Purpose – The purpose of this paper is to examine the mediating effect of competitive advantage in the relationship between intellectual capital and financial performance in Uganda's microfinance institutions. The major aim is to establish the role of competitive advantage in the relationship between intellectual capital and firm performance.Design/methodology/approach – The paper adopts MedGraph program (Excel version), Sobel tests and the Kenny and Boran approach to test for mediation effects.Findings – Competitive advantage is a significant mediator in the association between intellectual capital and financial performance and boosts the relationship between the two by 22.4 percent in Ugandan microfinance institutions. Further findings confirmed a partial type of mediation between the intellectual capital, competitive advantage and financial performance.Research limitations/implications – Only a single research methodological approach was employed and future research through interviews could be undertak...

Microfinance Decision Making: A Field Study of Prosocial Lending

Abstract: Microfinancing, or small uncollateralized loans to entrepreneurs in the developing world, has recently emerged as a leading contender to cure world poverty. Our research investigates the characteristics of borrowers that engender lending through Kiva, a popular organization that connects individual lenders to borrowers through online microfinance. Lenders favor individual borrowers over groups or consortia of borrowers, a pattern consistent with the identifiable victim effect. They also favor borrowers that are socially proximate to themselves. Across three dimensions of social distance (gender, occupation, and first name initial), lenders prefer to give to those who are more like themselves.

What is the evidence of the impact of microfinance on the well-being of poor people?

Abstract: The concept of microcredit was first introduced in Bangladesh by Nobel Peace Prize winner Muhammad Yunus. Professor Yunus started Grameen Bank (GB) more than 30 years ago with the aim of reducing poverty by providing small loans to the country’s rural poor (Yunus 1999). Microcredit has evolved over the years and does not only provide credit to the poor, but also now spans a myriad of other services including savings, insurance, remittances and non-financial services such as financial literacy training and skills development programmes; microcredit is now referred to as microfinance (Armendariz de Aghion and Morduch 2005, 2010). A key feature of microfinance has been the targeting of women on the grounds that, compared to men, they perform better as clients of microfinance institutions and that their participation has more desirable development outcomes (Pitt and Khandker 1998). Despite the apparent success and popularity of microfinance, no clear evidence yet exists that microfinance programmes have positive impacts (Armendariz de Aghion and Morduch 2005, 2010; and many others). There have been four major reviews examining impacts of microfinance (Sebstad and Chen, 1996; Gaile and Foster 1996, Goldberg 2005, Odell 2010, see also Orso 2011). These reviews concluded that, while anecdotes and other inspiring stories (such as Todd 1996) purported to show that microfinance can make a real difference in the lives of those served, rigorous quantitative evidence on the nature, magnitude and balance of microfinance impact is still scarce and inconclusive (Armendariz de Aghion and Morduch 2005, 2010). Overall, it is widely acknowledged that no well-known study robustly shows any strong impacts of microfinance (Armendariz de Aghion and Morduch 2005, p199-230). Because of the growth of the microfinance industry and the attention the sector has received from policy makers, donors and private investors in recent years, existing microfinance impact evaluations need to be re-investigated; the robustness of claims that microfinance successfully alleviates poverty and empowers women must be scrutinised more carefully. Hence, this review revisits the evidence of microfinance evaluations focusing on the technical challenges of conducting rigorous microfinance impact evaluations.

Group lending or individual lending? Evidence from a randomised field experiment in Mongolia

Abstract: Although microfinance institutions across the world are moving from group lending towards individual lending, this strategic shift is not substantiated by sufficient empirical evidence on the impact of both types of lending on borrowers. We present such evidence from a randomised field experiment in rural Mongolia. We find a positive impact of access to group loans on food consumption and entrepreneurship. Among households that were offered group loans the likelihood of owning an enterprise increases by 10 per cent more than in control villages. Enterprise profits increase over time as well, particularly for the less-educated. For individual lending on the other hand, we detect no significant increase in consumption or enterprise ownership. These results are in line with theories that stress the disciplining effect of group lending: joint liability may deter borrowers from using loans for non-investment purposes. Our results on informal transfers are consistent with this hypothesis. Borrowers in group-lending villages are less likely to make informal transfers to families and friends while borrowers in individual-lending villages are more likely to do so. We find no significant difference in repayment rates between the two lending programmes, neither of which entailed weekly repayment meetings.

‘Freedom from Poverty is Not for Free’: Rural Development and the Microfinance Crisis in Andhra Pradesh, India

Abstract: Within neoliberal development discourse, the poor are represented as entrepreneurial subjects for whom integration into formalized financial systems can facilitate their escape from poverty. This paper examines how the 2010 microfinance crisis in Andhra Pradesh reveals significant fault lines that underlie this narrative. It argues that the crisis of microfinance in Andhra Pradesh needs to be placed within the context of severe agrarian dislocations stemming from the impact of trade liberalization, drought cycles and a transformation of rural social relations. The contradictions are most strikingly represented in increasing rural differentiation and a generalized crisis of social reproduction among land-poor farmers and landless labourers. A massive influx of microfinance – driven by both state-operated programmes and private-sector institutions leveraged with cross-border financial flows – found a ready clientele among various agrarian classes seeking to bolster consumption and roll over debt in conditions of significant uncertainty and distress. Yet in banking on this vulnerability, microfinance institutions socialized the contradictions of rural Andhra Pradesh and have ultimately been thrown into limbo through the unleashing of political and social forces unforeseen in neoliberal narratives of agrarian change.

The Handbook of Microfinance

Abstract: The Handbook of Microfinance showcases an expansive collection of works from leading academics and field practitioners. In an attempt to understand the enormous gap between the limited number of clients that are currently benefiting from microfinance services, and the huge number of potential clients that are not, the selected contributions in this comprehensive handbook have one common thread: the prevailing mismatch between demand by clients of microfinance institutions and potential clients selecting themselves out for their demand for a wider array of financial products which is not being met.The scope of the book is wide, and explores successes and failures, main challenges and debates, methodologies for impact evaluation via random trials, leading trends in Asia versus Latin America, main efforts in Africa, the importance of value chains in Central America, ethical and gender issues, savings, microinsurance, governance, commercialization trends and the potential advantages and disadvantages of it. This exhaustive Handbook also features main lessons from informal finance and 19th-century credit cooperatives addressing the above-mentioned mismatch.

On mission drift in microfinance institutions

Abstract: This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as "mission drift": A tendency reviewd by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. . We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "progressive lending" nor because of "cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific clientele parameters. In a simple one-period framework we pin down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their social objectives. Because existing empirical studies cannot differentiate between mission drift and cross-subsidization, these studies can potentially mislead donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in separating cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia.

Latest findings from randomized evaluations of microfinance

Abstract: This paper summarizes the latest research findings from a new body of empirical evidence that uses randomized evaluations, similar to those used in medical trials, to compare how one group responds to access to specific new financial services against how a comparable group fares without those services. This paper goes back a couple of years to the first studies that used this approach, and summarizes a series of research studies presented at the October 2010 microfinance impact and innovation conference in New York. These studies evaluated product design for a range of financial services, including credit, savings, and insurance. The studies discussed here were undertaken by research affiliates of Innovations for Poverty Action (IPA), the Financial Access Initiative (FAI), and the Abdul Latif Jameel Poverty Action Lab (J-PAL) at the Massachusetts Institute of Technology; they are all randomized evaluations unless otherwise specified. Part one of this paper reviews the main results from randomized evaluations that measure the impact of microcredit and micro savings on business investment and creation, consumption, and household well-being. Part two presents evidence from evaluations of products and delivery design. Part three discusses the evidence on micro insurance products.

Contract Structure, Risk Sharing and Investment Choice

Abstract: Few microfinance-funded businesses grow beyond subsistence entrepreneurship. This paper considers one possible explanation: that the structure of existing microfinance contracts may discourage risky but high-expected return investments. To explore this possibility, I develop a theory that unifies models of investment choice, informal risk sharing, and formal financial contracts. I then test the predictions of this theory using a series of experiments with clients of a large microfinance institution in India. The experiments confirm the theoretical predictions that joint liability creates two inefficiencies. First, borrowers free-ride on their partners, making risky investments without compensating partners for this risk. Second, the addition of peer-monitoring overcompensates, leading to sharp reductions in risk-taking and profitability. Equity-like financing, in which partners share both the benefits and risks of more profitable projects, overcomes both of these inefficiencies and merits further testing in the field.

Does Microfinance Reduce Rural Poverty? Evidence Based on Household Panel Data from Northern Ethiopia

Abstract: Evidence on the long-term impacts of microfinance credit is scarce.We use a unique four-round panel dataset on farm households in northern Ethiopia that had access to microfinance, observed on two key poverty indicators:household consumption and housing improvements.Fixed-effects and random trend models are used to reduce potential selection biases due to time-invariant unobserved heterogeneity and individual trends therein. Results show that borrowing indeed causally increased consumption and housing improvements. A flexible specification that takes into account repeated borrowings also suggests that borrowing has cumulative long-term effects on these outcomes, implying that short-term impact estimates may underestimate credit effects.

Cash transfer and microfinance interventions for tuberculosis control: review of the impact evidence and policy implications.

Abstract: THERE IS EVIDENCE that the reduction in tuberculosis (TB) mortality observed in Europe and North America before World War II resulted from the successful combination of economic growth and specific public health policies such as patient isolation and the elimination of bovine TB.1,2 The importance of a combined approach has recently been reinforced by a number of studies suggesting that while DOTS programmes have significantly contributed to the reduction of TB prevalence and TB mortality, socio-economic development still remains the main determinant of TB incidence decline in many regions of the world.3-5 Despite this, literature on interventions addressing structural and social determinants6 of TB is currently virtually non-existent. Through the improvement of material living conditions, psychosocial circumstances and health-seeking behaviours, these interventions have the double potential to improve access to quality TB care and also reduce people’s vulnerability to TB. A broad range of poverty alleviation strategies may achieve the above objectives; among them, cash transfer and microfinance programmes have gathered considerable visibility in the last decade, due to both the large number of individuals enrolled and the increasing number of studies formally documenting their impact. Cash transfers are innovative forms of social protection based on the provision of money to poor or vulnerable households and individuals (such as the elderly and children) with the aim of enabling them to move out of poverty by protecting and building their financial, physical and human capital assets.7 Cash transfers can be unconditional (given without obligation) or conditional on some behavioural requirements, such as school enrolment, health services utilisation and/or the attendance of health education workshops. Microfinance programmes are considered poverty alleviation measures aimed at directly averting deprivation.8 These programmes are based on the provision to the poor of small loans to enable them to engage in productive activities that can ultimately contribute to their long-term economic growth and productivity.8 Despite the impressive scale-up of these interventions and their acknowledged potential public health relevance,9,10 their relevance for TB control largely depends on evidence of their effect on outcomes epidemiologically linked to TB and the critical assessment of the challenges limiting their implementation in the context of TB. This review aimed to address these issues by: 1) systematically quantifying the impact of these interventions and 2) evaluating their main design and implementation features from the perspective of TB control.

Access to Credit, Natural Disasters, and Relationship Lending

Abstract: This paper analyzes the effect of unpredictable aggregate shocks on loan demand and access to credit by combining client-level information from an Ecuadorian microfinance institution with geophysical data on natural disasters, more specifically volcanic eruptions. The results of this 'natural experiment' show that while credit demand increases due to volcanic activity, access to credit is restricted. Yet, we also find that bank-borrower relationships can lower these lending restrictions and that clients who are known to the institution are about equally likely to be approved for loans after volcanic eruptions occurred.

Microfinance And Poverty Reduction: Some International Evidence

Abstract: Year 2005 was called international year of microcredit by United Nations. Since, micro finance has proven to be an effective tool for poverty reduction this paper argues that microfinance can be considered an important element for an effective poverty reduction strategy. It shows that access and efficient provision of microcredit can enable the poor to smooth their consumption, better manage their risks better, gradually build their assets, develop their micro enterprises, enhance their income earning capacity, and enjoy an improved quality of life. Microfinance services can also contribute to the improvement of resource allocation, promotion of markets, and adoption of better technology; thus, microfinance helps to promote economic growth and development. Also the characteristics of financial systems in developing counties will be discussed and argued that formal financial sector is not consistent with the needs and requirements of the poor and the existence of informal financial sector is a response to the shortcomings of the formal financial sector.

European Small Business Finance Outlook

Abstract: This analysis provides an overview of the main markets relevant to EIF. We start by discussing the general market environment, then look at the main aspects of equity finance and the SME Securitisation market. Finally, we briefly highlight important aspects of microfinance in Europe.

The effect of microfinance factors on women entrepreneurs’ performance in Nigeria: a conceptual framework

Abstract: Women play a crucial role in the economic development of their families and communities but certain obstacles such as poverty, unemployment, low household income and societal discriminations mostly in developing countries have hindered their effective performance of that role. As such, most of them embark on entrepreneurial activities to support their families. It is discovered that women entrepreneurship could be an effective strategy for poverty reduction in a country; since women are the worst hit in such situation. However, it is discovered that women entrepreneurs, especially in developing countries, do not have easy access to microfinance factors for their entrepreneurial activity and as such have low business performance than their men counterparts, whereas the rate of their participation in the informal sector of the economy is higher than males, and microfinance factors could have positive effect on enterprise performance. The objective of this study is to examine the effect of credit, savings, training and social capital on women entrepreneurs’ performance in Nigeria. The study involves a survey using structured questionnaire and an indepth interview to solicit responses from women entrepreneurs, and secondary data from microfinance institutions. Data analysis involves the use of Structural Equation Modelling.

Macroeconomics of Microfinance

Abstract: This paper provides a quantitative evaluation of the aggregate and distributional impacts of economy-wide microfinance or other credit programs targeted toward small-scale entrepreneurs. In our analysis, we find that the redistributive impacts of microfinance are stronger in general-equilibrium, but the aggregate impacts are smaller. Making the typical microfinance program more widely available has a negligible impact on per-capita income, since an increase in aggregate total factor productivity(TFP) is offset by lower capital accumulation that stems from redistributing income from individuals with high saving rates to those with low saving rates. However, the welfare impact is uniformly positive except for those few that are extremely talented and/or wealthy.

High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh

Abstract: Recently, microfinance has come under increasing criticism raising questions of the validity of iconic studies which have justified the microfinance phenomenon. This paper applies propensity score matching (PSM), which has become widely used for the analysis of observational data, to the study by Pitt and Khandker (1998) which has been labelled the most rigorous evidence supporting claims that microfinance benefits the poorest especially when targeted on women. After carefully reconstructing the data we differentiate outcomes by gender of borrower, take account of borrowing from several formal and informal sources, and find that the mainly positive impacts of microfinance that we observe are shown by sensitivity analysis to be highly vulnerable to selection on unobservables, and we are therefore not convinced that the relationships between microfinance and outcomes are causal.