Showing papers on "Microfinance published in 2014"

Estimating the Impact of Microcredit on Those Who Take It Up: Evidence from a Randomized Experiment in Morocco

Abstract: This paper reports the results from a randomized evaluation of a microcredit program introduced in rural areas of Morocco starting in 2006 by Al Amana, the country’s largest microfinance institution Al Amana was the only MFI operating in the study areas during the evaluation period Thirteen percent of the households in treatment villages took a loan, and none in control villages Among households identified as more likely to borrow based on ex-ante characteristics, microcredit access led to a significant rise in investment in assets used for self-employment activities (mainly animal husbandry and agriculture), and an increase in profit But this increase in profit was offset by a reduction in income from casual labor, so overall there was no gain in measured income or consumption We find suggestive evidence that these results are mainly driven by effects on borrowers, rather than by externalities on households that do not borrow This implies that among those who chose to borrow, microcredit had large, albeit very heterogeneous, impacts on assets and profits from self-employment activities, but small impact on consumption: we can reject an increase in consumption of more than 10% among borrowers, two years after initial rollout

Female leadership, performance, and governance in microfinance institutions.

Abstract: This paper investigates the relations between female leadership, firm performance, and corporate governance in a global panel of 329 Microfinance Institutions (MFIs) in 73 countries covering the years 1998–2008. The microfinance industry is particularly suited for studying the impact of female leadership on governance and performance because of its mission orientation, its entrepreneurial nature, diverse institutional conditions, and high percentage of female leaders. We find female leadership to be significantly associated with larger boards, younger firms, a non-commercial legal status, and more female clientele. Furthermore, we find that a female chief executive officer and a female chairman of the board are positively related to MFI performance, but this result is not driven by improved governance.

Debtfare States and the Poverty Industry: Money, Discipline and the Surplus Population

Abstract: Introduction. Part I: Theorizing Money, Credit and Debtfare States Chapter 1: Demystifying Money, Chapter 2: The Power and Paradoxes of Credit, Chapter 3: Debtfare States, Part II: Debtfarism and the Poverty Industry in the United States, Preface to Part II: Debtfarism and the Making of the Poverty Industry, Chapter 4: Debtfarism and Credit Card Industry, Chapter 5: Debtfarism and Student Loan Industry, Chapter 6: Debtfarism and Payday Loan Industry, Part III: Debtfarism and the Poverty Industry in Mexico, Preface to Part III: Debtfarism, Development, and Dispossession, Chapter 7: Global Debtfarism and Universalization of Financial Inclusion, Chapter 8: Debtfarism and the Microfinance Industry, Chapter 9: Debtfarism and the Housing Industry, Conclusion.

Cultural differences and geography as determinants of online prosocial lending

Abstract: In this paper, we analyze patterns of transaction between individuals using data drawn from Kiva.org, a global online crowdfunding platform that facilitates prosocial, 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 Information Systems 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 percent increase in physical distance is associated with an approximate 30 percent 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 prosocial lending, online crowdfunding, and electronic markets more broadly.

Money or ideas ? a field experiment on constraints to entrepreneurship in rural Pakistan

Abstract: This paper identifies the relative importance of human and physical capital for entrepreneurship. A subset of rural microfinance clients were offered eight full time days of business training and the opportunity to participate in a loan lottery of up to Rs. 100,000 (USD 1,700), about seven times the average loan size. The study finds that business training increased business knowledge, reduced business failure, improved business practices and increased household expenditures by about $40 per year. It also improved financial and labor allocation decisions. These effects are concentrated among male clients, however. Women improve business knowledge but show no improvements in other outcomes. A cost-benefit analysis suggests that business training was not cost-effective for the microfinance institution, despite having a positive impact on clients. This may explain why so few microfinance institutions offer training. Access to the larger loan, in contrast, had little effect, indicating that existing loan size limits may already meet the demand for credit for these clients.

The institutional context of poverty: State fragility as a predictor of cross‐national variation in commercial microfinance lending

Abstract: We examine cross-national variation in the global growth of commercial microfinance from 1998 to 2009 as a natural experiment to analyze the role of national institutions in shaping the ability of commercial enterprises to reach the global poor. Our results demonstrate that a country's level of state fragility represents an important institutional context of poverty that explains significant cross-national variation in the commercial microfinance industry's ability to grow its client base, control costs, and attract commercial capital. Moreover, we find that commercial microfinance lenders have experienced greater difficulty than nonprofit lenders in growing their client base in more fragile state settings. Our results support the proposition that the state shapes both institutional hazards and opportunities for business-led efforts to combat global poverty.

Bundling Health Insurance and Microfinance in India: There Cannot Be Adverse Selection If There Is No Demand

Abstract: Most of the world’s poor face large risks, which affect their investment decisions and contribute to the perpetuation of poverty (Karlan et al., 2013). In this context, insurance products targeted at the poor are seen as having substantial promise, as opportunities both to make profit and to improve efficiency and social welfare. The marketing of insurance products to the poor has faced two obstacles, however. First, demand for insurance products is generally low (Cole et al., 2013). Second, insurers have been worried about adverse selection and moral hazard, with the latter concern leading insurers to offer only basic products (e.g., indexed weather insurance or catastrophic health insurance). Bundling insurance policies with other products, such as Microfinance loans, has been seen as a promising solution to both the demand and the adverse selection problems (see, e.g., ILO, 2013), under the theory that even those who derive little benefit from insurance would still want the bundled services. Microfinance institutions might either serve as an agent to a larger insurance company or offer the insurance policy themselves. The hope is that bundling would create a large pool of non-selected clients, eliminating adverse selection and reducing administrative costs. Major health expenditures are a significant source of risk for the world’s poor that is not well-insured, even by the informal insurance network that households typically call upon (Gertler and Gruber, 2002; Fafchamps and Lund, 2003). Many Microfinance institutions have therefore experimented with bundling health insurance with their loans. Drawing evidence from the randomized introduction of a health insurance program bundled with a standard Microfinance program, we show that the basic presumption that bundling the two would lead to a large client base is wrong. We find that a large fraction of borrowers (16 percentage points) were actually willing to give up microfinance to avoid purchasing health insurance, and that the majority of those clients ended up losing access to Microfinance altogether. The observed client dropout, while discouraging for the Microfinance institution and the insurer, provides an opportunity to observe whether the original concerns of adverse selection are actually a main barrier to providing health insurance. We find that the answer to this question is an emphatic no: there is no evidence that clients dropping out to avoid purchasing insurance are systematically different from those who remain clients, in terms of their propensity to have insurable health care expenses, including covered maternity expenses that are most easily predictable. It seems that insurers, policy makers, and academics are one step ahead of insurance clients. The central issue seems not to be that only those who need health insurance would be willing to sign up, but that even those who would need it are not willing to sign up for it, potentially at the cost of losing a valuable resource.

The Political Economy of Microfinance: Financializing Poverty

Abstract: 1. A Framework for Engaging Microfinance 2. A Genealogy of Microfinance 3. The Financialisation of Poverty 4. Financialising Public Goods 5. Mechanisms of a Microfinance Crisis 6. At the Crossroads of Development and Finance 7. Appendix 7.1 Calculating the Surplus Extraction 7.2 Projects Using Microfinance for Water and Sanitation

How does microfinance enhance entrepreneurial outcomes in emerging economies? The mediating mechanisms of psychological and social capital

Abstract: In this article, a conceptual framework and research propositions are developed to explain how microfinance provision can translate into new venture creation and existing venture growth in an emerging economy context by engendering higher levels of psychological and social capital in clients. In doing this, the extent to which microfinance institutions provide business support and opportunities for social interaction are identified as factors which may strengthen the impact of microfinance provision on psychological and social capital, especially for poor entrepreneurs in resource-constrained settings. The conceptual framework and research propositions developed will be of use to academics in designing an agenda for future empirical research. In addition, they will help policymakers and microfinance providers to better design microfinance initiatives that enhance the well-being of clients and maximise their entrepreneurial outcomes.

Integrating Group Counseling, Cell Phone Messaging, and Participant-Generated Songs and Dramas into a Microcredit Program Increases Nigerian Women’s Adherence to International Breastfeeding Recommendations

Abstract: In northern Nigeria, interventions are urgently needed to narrow the large gap between international breastfeeding recommendations and actual breastfeeding practices. Studies of integrated microcredit and community health interventions documented success in modifying health behaviors but typically had uncontrolled designs. We conducted a cluster-randomized controlled trial in Bauchi State, Nigeria, with the aim of increasing early breastfeeding initiation and exclusive breastfeeding among female microcredit clients. The intervention had 3 components. Trained credit officers led monthly breastfeeding learning sessions during regularly scheduled microcredit meetings for 10 mo. Text and voice messages were sent out weekly to a cell phone provided to small groups of microcredit clients (5-7 women). The small groups prepared songs or dramas about the messages and presented them at the monthly microcredit meetings. The control arm continued with the regular microcredit program. Randomization occurred at the level of the monthly meeting groups. Pregnant clients were recruited at baseline and interviewed again when their infants were aged ≥6 mo. Logistic regression models accounting for clustering were used to estimate the odds of performing recommended behaviors. Among the clients who completed the final survey (n = 390), the odds of exclusive breastfeeding to 6 mo (OR: 2.4; 95% CI: 1.4, 4.0) and timely breastfeeding initiation (OR: 2.6; 95% CI: 1.6, 4.1) were increased in the intervention vs. control arm. Delayed introduction of water explained most of the increase in exclusive breastfeeding among clients receiving the intervention. In conclusion, a breastfeeding promotion intervention integrated into microcredit increased the likelihood that women adopted recommended breastfeeding practices. This intervention could be scaled up in Nigeria, where local organizations provide microcredit to >500,000 clients. Furthermore, the intervention could be adopted more widely given that >150 million women, many of childbearing age, are involved in microfinance globally.

Causes and Control of Loan Default/Delinquency in Microfinance Institutions in Ghana

Abstract: The study analysed the causes and control of loan delinquency/default in microfinance institutions in Ghana. Random sampling technique was used to select twenty-five microfinance institutions and two hundred and fifty clients for the study. Questionnaire and interview guide were used to collect data for the study. The study found the causes of loan default to include; high interest rate, inadequate loan sizes, poor appraisal, lack of monitoring, and improper client selection. Measures to control default were found to include training before and after disbursement, reasonable interest rate, monitoring of clients, and proper loan appraisal. It was recommended among others that MFIs should have clear and effective credit policies and procedures and must be regularly reviewed. It was concluded that the government and hence Bank of Ghana should regularly monitor and supervise the MFIs so as to ensure safety of clients’ deposits and customers’ confidence.

SME finance in Africa

Abstract: This paper uses cross-country firm-level surveys to gauge access to financial services and the importance of financing constraints for African enterprises. The paper compares access to finance in Africa and other developing regions of the world, within Africa across countries, and across different groups of firms. It relates firms' access to finance to firm and banking system characteristics and discusses policy challenges.

Does Microfinance Reduce Income Inequality

Abstract: This study addresses the question whether participation of the poor in microfinance contributes to reducing a country’s level of income inequality. Using data from 70 developing countries, we show that higher levels of microfinance participation are indeed associated with a reduction of the income gap between rich and poor people. We also show, however, that the effects of microfinance on reducing income inequality are relatively small. The results of this study add to the discussion on the impact of microfinance on poverty by showing that, although access to microfinance does seem to improve the relative income position of the poor, this improvement is modest, which is probably because the use of microfinance is generally small as compared to the size of the economy of the countries in our sample. Microfinance should, therefore, not be seen as a panacea for bringing down income inequality in a significant way.

Optimal microfinance loan size and poverty reduction amongst female entrepreneurs in Pakistan

Abstract: Purpose – The purpose of this paper is to explore the impact of microfinance loans on poverty reduction amongst women entrepreneurs in Pakistan. The authors set out to establish whether there exists an optimal loan size to attain the objectives of women entrepreneurs and poverty reduction in this country. Design/methodology/approach – This exploratory study is based upon an empirical investigation of 123 semi structured interviews as well as in-depth, semi structured interviews with a sub sample of ten women entrepreneurs who secured microfinance loans for their new or established enterprises. Findings – Emergent results show that access to finance is important for female entrepreneurs and helps them realise their potential as entrepreneurs. An optimal, poverty reduction, microfinance size has been identified. A range of entrepreneurial characteristics were found to be critical to the success of women led enterprises in general and to poverty reduction amongst their families in particular. Research limitations/implications – This research focuses upon a relatively small sample of female entrepreneurs operating in the Pakistani economy. Although the results could be relevant to women entrepreneurs in other developing countries, caution should be exercised when attempting to generalise these finding to other contexts. Originality/value – Emergent results make a contribution to research on women entrepreneurship in general and optimal microfinance loan size in particular.

Assessing Countries' Financial Inclusion Standing - A New Composite Index

Abstract: This paper leverages the IMF’s Financial Access Survey (FAS) database to construct a new composite index of financial inclusion. The topic of financial inclusion has gathered significant attention in recent years. Various initiatives have been undertaken by central banks both in advanced and developing countries to promote financial inclusion. The issue has also attracted increasing interest from the international community with the G-20, IMF, and World Bank Group assuming an active role in developing and collecting financial inclusion data and promoting best practices to improve financial inclusion. There is general recognition among policy makers that financial inclusion plays a significant role in sustaining employment, economic growth, and financial stability. Nonetheless, the issue of its robust measurement is still outstanding. The new composite index uses factor analysis to derive a weighting methodology whose absence has been the most persistent of the criticisms of previous indices. Countries are then ranked based on the new composite index, providing an additional analytical tool which could be used for surveillance and policy purposes on a regular basis.

The challenge in poverty alleviation: role of Islamic microfinance and social capital

Abstract: Purpose – The purpose of this paper is to examine the growth of Islamic microfinance (bila sudi-qardh) scheme in Andaman Islands and to see how Islamic microfinance sector and social capital contribute to face the challenge in poverty alleviation. Design/methodology/approach – The researcher developed a questionnaire and conducted non-random survey with the samples of Islamic microfinance group members to examine the Islamic microfinance and cash awqaf effect for the development of the local common resources (LCRs) in general; and financial, physical capital as well as social and human capital effects of the group members in particular. Findings – This study found that collective action through Islamic microfinance groups actually helps to increase environmental awareness, economic betterment of the members and fruitful management of LCRs through Islamic microfinance. Research limitations/implications – The paper's findings are limited to the Islamic microfinance groups' management in Andaman Islands in I...

Microfinance and Its Discontents: Women in Debt in Bangladesh

Abstract: Microfinance – providing small loans to low-income entrepreneurs – received much acclaim in 2006, when the Nobel Peace Prize was awarded jointly to Muhammed Yunus and Grameen Bank, which Yunus foun...

Microfinance Banks and Financial Inclusion

Abstract: We examine how the geographical proximity to a new microfinance bank branch affects the use of bank accounts by low-income households. We study the expansion of the branch network of ProCredit banks in South-East Europe between 2006 and 2010. The analysis is based on household-level survey data and bank-branch location data which are matched on geographic coordinates. We control for trends in local economic activity with satellite data on night light intensity. We report three main findings: First, ProCredit is more likely to open a new branch in areas with a large share of low-income households. Second, in locations where ProCredit opens a new branch the share of banked households increases more than in locations where it does not open a new branch. Third, the impact of a new ProCredit branch on the use of bank accounts is stronger among low- and middle-income households than among high-income households, but also among older households which rely on transfer income. Our results suggest that microfinance banks can promote financial inclusion even in emerging markets which are well served by retail banks.

Saving for a (not so) Rainy Day: A Randomized Evaluation of Savings Groups in Mali

Abstract: High transaction and contracting costs are often thought to create credit and savings market failures in developing countries. The microfinance movement grew largely out of business process innovations and subsidies that reduced these costs. We examine an alternative approach, one that infuses no external capital and introduces no change to formal contracts: an improved “technology” for managing informal, collaborative village‐based savings groups. Such groups allow, in theory, for more efficient and lower‐cost loans and informal savings, and in practice have been scaled up by international non‐profit organizations to millions of members. Individuals save together and then lend the accumulated funds back out to themselves. In a randomized evaluation in Mali, we find improvements in food security, consumption smoothing, and buffer stock savings. Although we do find suggestive evidence of higher agricultural output, we do not find overall higher income or expenditure. We also do not find downstream impacts on health, education, social capital, and female decision‐making power. Could this have happened before, without any external intervention? Yes. That is what makes the result striking, that indeed there were no resources provided nor legal institutional changes, yet the NGO‐guided, improved informal processes led to important changes for households.

Bank-insured RoSCA for microfinance: Experimental evidence in poor Egyptian villages

Abstract: Microfinance institutions (MFIs) have continued to grow over the past few decades, both in numbers of clients and portfolio sizes. The growth of these MFIs has enabled greater access to credit in many of the world's less developed nations. However, recent studies have shown that very many of the poor – especially Muslims – remain unbanked. Confounding this problem in many Muslim countries is the poor's propensity to reject microfinance, when available, on religious grounds. In this paper we develop an alternative microfinance model which aims to establish credit unions for the poor in which the bank plays the role of a guarantor in the familiar rotating savings and credit association (RoSCA). We test the performance of this model against a stylized sequential Grameen-style microcredit provision in a “laboratory experiment in the field” conducted in poor Egyptian villages. Our model of bank-insured RoSCAs is shown to solve coordination-failure problems that may otherwise prevent the spontaneous development of informal RoSCAs in practice. Empirically, our bank-insured RoSCA model generated significantly higher takeup and repayment rates than the Grameen model. This suggests that this model, by overcoming the religious barriers to credit, can be a useful alternative to Grameen-style microfinance.

Institutionalizing Ethics in Institutional Voids: Building Positive Ethical Strength to Serve Women Microfinance Borrowers in Negative Contexts

Abstract: This study examines whether microfinance institutions (MFIs) that serve women borrowers at the base of the economic pyramid are likely to adopt a written code of positive organizational ethics (POE). Using econometric analysis of operational and economic data of a sample of MFIs from across the world, we find that two contextual factors—poverty level and lack of women’s empowerment—moderate the influence of an MFI’s percentage of women borrowers on the probability of the MFI having a POE code. MFIs that serve more women borrowers are more likely to adopt a POE code, especially in negative contexts (where women borrowers face poverty and disempowerment and are therefore susceptible to abuse). This study provides evidence that MFIs can build positive ethical strength in negative contexts.

Borrowing Across Borders: Migration and Microcredit in Rural Cambodia

Abstract: This article explores an unexpected and overlooked consequence of the expansion of microcredit: how it interacts with migration patterns. Drawing on qualitative research in northwest Cambodia, this study explores the uses, meanings and implications of ‘migra-loans’ — microcredit loans that are used in tandem with household strategies of international migration. Using microcredit in combination with migration allows households to immediately meet consumption goals and utilize the credit being actively promoted by microfinance institutions, while also retreating from insecure and less profitable local livelihood strategies. These strategies problematize expectations about the developmental potential of microcredit, and highlight the importance of local context in framing rural livelihood choices.