Showing papers on "Microfinance published in 2013"

The miracle of microfinance? Evidence from a randomized evaluation

Abstract: This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya

Abstract: Does limited access to formal savings services impede business growth in poor countries? To shed light on this question, we randomized access to noninterest-bearing bank accounts among two types of self-employed individuals in rural Kenya: market vendors (who are mostly women) and men working as bicycle taxi drivers. Despite large withdrawal fees, a substantial share of market women used the accounts, were able to save more, and increased their productive investment and private expenditures. We see no impact for bicycletaxi drivers. These results imply significant barriers to savings and investment for market women in our study context. (JEL D14, G21, J16, J23, O12, O14, O16)

Cultural Differences and Geography as Determinants of Online Pro-Social Lending

Abstract: We analyze patterns of transaction between individuals using data drawn from Kiva.org, a global online crowdfunding platform that facilitates pro-social, peer-to-peer lending. Our analysis, which employs an aggregate dataset of country-to-country lending volumes based on more than three million individual lending transactions that took place between 2005 and 2010, considers the dual roles of geographic distance and cultural differences on lenders’ decisions about which borrowers to support. While cultural differences have seen extensive study in the IS literature as sources of friction in extended interactions, here, we argue and demonstrate their role in individuals’ selection of a transaction partner. We present evidence that lenders do prefer culturally similar and geographically proximate borrowers. An analysis of the marginal effects indicates that an increase of one standard deviation in the cultural differences between lender and borrower countries is associated with 30 fewer lending actions, while an increase of one standard deviation in physical distance is associated with 0.23 fewer lending actions. We also identify a substitution effect between cultural differences and physical distance, such that a 50% increase in physical distance is associated with an approximate 30% decline in the effect of cultural differences. Considering approaches to overcoming the observed cultural effect, we offer some empirical evidence of the potential of IT-based trust mechanisms, focusing on Kiva’s reputation rating system for microfinance intermediaries. We discuss the implications of our findings for pro-social lending, online crowdfunding, and electronic markets more broadly.

The Miracle of Microfinance? Evidence from a Randomized Evaluation

Abstract: This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know?

Abstract: Research on microcredit is now two decades old. There has been enormous progress in understanding both what microcredit does and how. Yet a lot of what we have learned has raised new and often quite fundamental questions about its nature: Is microcredit primarily about investment, consumption, or savings? Why is it that the investments financed by microcredit do not always lead to income growth, and does this have to do with the structure of microlending? What are the roles of social capital, reputation, and group lending? This article attempts to take stock of this significant body of work and tries to identify the most important questions for future research.

Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India †

Abstract: Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty. (JEL A21, G32, I32, L25, L26, O15, O16)

Financial Inclusion and Legal Discrimination Against Women : Evidence from Developing Countries

Abstract: This paper documents and analyzes gender differences in the use of financial services using individual-level data from 98 developing countries. The data, drawn from the Global Financial Inclusion (Global Findex) database, highlight the existence of significant gender gaps in ownership of accounts and usage of savings and credit products. Even after controlling for a host of individual characteristics including income, education, employment status, rural residency and age, gender remains significantly related to usage of financial services. This study also finds that legal discrimination against women and gender norms may explain some of the cross-country variation in access to finance for women. The analysis finds that in countries where women face legal restrictions in their ability to work, head a household, choose where to live, and receive inheritance, women are less likely to own an account, relative to men, as well as to save and borrow. The results also confirm that manifestations of gender norms, such as the level of violence against women and the incidence of early marriage for women, contribute to explaining the variation in the use of financial services between men and women, after controlling for other individual and country characteristics.

Microfinance and Gender: Is There a Glass Ceiling on Loan Size?

Abstract: Most of the customers of microfinance institutions are female. But do men and women benefit from the same credit conditions? We investigate this issue by presenting an original model and testing its predictions on an exceptional database comprising 34,000 loan applications from a Brazilian microfinance institution. The model determines the optimal loan size fixed by a gender-biased lender, depending on the borrower's creditworthiness and the intensity of the lender's bias. The empirical analysis detects no gender bias in loan denial, but uncovers disparate treatment with regard to credit conditions. In particular, we find a “glass ceiling” effect. The gender gap in loan size increases disproportionately with respect to the scale of the borrower's project. The results are insensitive to the loan officer's gender.

Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ outreach and performance

Abstract: This article analyses the relationship between outreach and performance of Microfinance Institutions (MFIs) on the one hand and traditional financial sector development on the other. The results indicate that MFIs reach more clients and are more profitable in countries where access to the traditional financial system is low. This finding is in line with the market-failure hypothesis: MFIs respond to a need that banks do not fulfill and MFIs flourish where the formal financial sector fails. Along the same line, the results demonstrate that MFIs serve poorer people in countries with well-developed financial systems. The results suggest that in countries with well-developed financial systems, the two sectors stand in more direct competition with each other. This competition pushes MFIs down the market and makes mission drift by MFIs less likely.

Credit scoring models for the microfinance industry using neural networks: Evidence from Peru

Abstract: Credit scoring systems are currently in common use by numerous financial institutions worldwide. However, credit scoring with the microfinance industry is a relatively recent application, and no model which employs a non-parametric statistical technique has yet, to the best of our knowledge, been published. This lack is surprising since the implementation of credit scoring should contribute towards the efficiency of microfinance institutions, thereby improving their competitiveness in an increasingly constrained environment. This paper builds several non-parametric credit scoring models based on the multilayer perceptron approach (MLP) and benchmarks their performance against other models which employ the traditional linear discriminant analysis (LDA), quadratic discriminant analysis (QDA), and logistic regression (LR) techniques. Based on a sample of almost 5500 borrowers from a Peruvian microfinance institution, the results reveal that neural network models outperform the other three classic techniques both in terms of area under the receiver-operating characteristic curve (AUC) and as misclassification costs.

Group versus individual liability : long term evidence from Philippines microcredit lending groups

Abstract: This brief summarizes the group versus individual liability: long term evidence from Philippines microcredit lending groups for the period 2004-2008. Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.

Banking in Africa

Abstract: This paper takes stock of the current state of banking systems across Sub-Saharan Africa and discusses recent developments including innovations that might help Africa leapfrog more traditional banking models. Using an array of different data, the paper documents that African banking systems are shallow but stable. African banks are well capitalized and over-liquid, but lend less to the private sector than banks in non-African developing countries. African enterprises and households are less likely to use financial services than their peers in other developing countries. The paper also describes a number of financial innovations across the continent that can help overcome different barriers to financial inclusion and have helped to expand the bankable and the banked population.

Scale economies and input price elasticities in microfinance institutions

Abstract: Author's version of an article in the journal: Journal of Banking & Finance. Also available from the publisher at: http://dx.doi.org/10.1016/j.jbankfin.2012.08.004

The New Microfinance Handbook: A Financial Market System Perspective

Abstract: The new microfinance handbook provides a primer on financial services for the poor. It is written for a wide audience, including practitioners, facilitators, policy makers, regulators, investors, and donors working to improve the financial system, but who are relatively new to the sector. It will also be useful for telecommunication companies and other support service providers, students and academics, and consultants and trainers. Although this book is in part an update of the original handbook, the growth of the sector and the complexity of the financial market system have led to a perspective much broader than the previous 'financial and institutional perspective.' As a result, additional chapters have been added to address issues more relevant than when the original handbook was written. To reflect this complexity, the author invited a number of experts to write many of the new chapters. In addition, given that this book does not go into as much detail as the previous book did, a list of key resources at the end of each chapter provides readers additional information on specific topics. Finally, although the title still uses the term microfinance, the book very much addresses the wider financial ecosystem, moving beyond the traditional meaning of microfinance to inclusive financial systems.

Competition and the performance of microfinance institutions

Abstract: This article examines the relationship between competition and the performance of Microfinance Institutions (MFIs). We measure competition by constructing a Lerner index. Next, we assess the association between increased competition among MFIs on the one hand and outreach and loan repayment performance of individual MFIs on the other. The empirical investigation is based on data from 362 MFIs in 73 countries for the period 1995–2008. Based on our analysis we do find a general trend of increased competition in microfinance during the last decade. Moreover, our econometric analysis provides evidence that competition among MFIs is negatively associated with their outreach and repayment performance.

Focus on Women in Microfinance Institutions

Abstract: We provide empirical evidence on focusing on women in microfinance and its consequences for microfinance institutions (MFIs). Based on a global dataset, the results indicate that a focus on women is associated with group-lending methods, international orientation, smaller loans, and non-commercial legal status. We find that a focus on women significantly improves repayment but does not enhance overall financial performance because of higher relative costs. Moreover, the higher relative costs do not stem from servicing women per se but from the smaller loans offered to women and the group-lending methodology practised by MFIs focusing on women.

Sustainable Livelihood Approach: A Critique of Theory and Practice

Abstract: This book provides some practical advice on how to address problems of sustainability in developing nations, demonstrating the precepts of the ‘sustainable livelihood approach’ (SLA) by examining a two-year case study of a microfinance ...

Rise and Fall of Microfinance in India: The Andhra Pradesh Crisis in Perspective

Abstract: The crisis of microfinance which erupted in 2010 in Andhra Pradesh has complex causes rooted in Indian history

Empowering Women through Microfinance: Evidence from Tanzania

Abstract: Traditionally the position of women in Tanzania has been low compared to men. Women are poorer, have low education and suffer from traditions and customary laws. Thus, empowerment of women is one of the main issues in Tanzania and beyond. Microfinance services are considered as an entry point or a vehicle toward empowering women. However, it is also considered that Microfinance Institutions are extorting money from poor women through high interest rates, causing higher social pressure and in some cases lead to domestic violence. Using the quantitative and qualitative data from three regions of Tanzania, this study shows that women members of microfinance institutions (MFIs) are more empowered compared to non-members in non-program areas. In total 454 women (305 members of MFIs and 149 non-members) participated in the survey and 10 women in the in-depth interviews. The data obtained are analysed using Mann-Whitney U test. The results show a significant difference between the women members of MFIs and non-members in the dependant variables related to women empowerment. Women members of MFIs have more control over savings and income generated from the business, greater role in decision-making, greater self-efficacy and self-esteem, and greater freedom of mobility and increased activities outside home.

Microfinance, debt and over-indebtedness : juggling with money

Abstract: 1. Introduction Isabelle Guerin, Solene Morvant-Roux and Magdalena Villarreal 2. Household Over-Indebtedness in Northern and Southern Countries: A macro-perspective Jean-Michel Servet and Hadrien Saiag 3. Indebted Mexicans in the Californian Mortgage Crisis Magdalena Villarreal 4. Debt, Over-Indebtedness and Wellbeing: An exploration Susan Johnson 5. Why Do the Poor Pay More for Their Credit? A French case study Helene Ducourant 6. Debt, Credit and Contractual Synchrony in a South-Indian Market Town Barbara Harriss-White 7. The Social Meaning of Over-Indebtedness and Creditworthiness in the Context of Poor Rural South Indian Households (Tamil Nadu) Isabelle Guerin, Marc Roesch, G. Venkatasubramanian and K. S. Santosh Kumar 8. Protection and Over-Indebtedness in Rural South India: The case of labour migrants of Andhra Pradesh Picherit David 9. International Migration and Over-Indebtedness in Rural Mexico Solene Morvant-Roux 10. Multiplying Debt and Dependence: Gender strategies and the social risks of financial inclusion in Western Mexico Francesco Zanotelli 11. Does Juggling Mean Struggling? Insights into the financial practices of rural households in Madagascar Betty Wampfler, Emmanuelle Bouquet and Eliane Ralison 12. The Social Costs of Microfinance and Over-Indebtedness for Women Lourdes Angulo Salazar 13. The Commercialization of Microcredits and Local Consumerism: Examples of over-indebtedness from indigenous Mexico Agata Hummel 14. Mortgaging Used Sari-Skirts, Spear-Heading Resistance: Narratives from the microfinance repayment standoff in a South Indian town, 2008-2010 Nithya Joseph 15. Conclusion Isabelle Guerin, Solene Morvant-Roux and Magdalena Villarreal

Microfinance and the challenge of financial inclusion for development

Abstract: This article provides a review of the recent literature on microfinance in developing countries and a critical assessment of its effectiveness. It examines the experience of India, which has one of the largest microfinance sectors in the world, and particularly the unfolding of the microfinance crisis in Andhra Pradesh. It concludes that microfinance cannot be seen as a silver bullet for development and that profit-oriented microfinance institutions are problematic. To fulfil even some of its progressive goals, it must be regulated and subsidised, and other strategies for viable financial inclusion of the poor and of small producers must be more actively pursued.