Showing papers on "Microfinance published in 2016"
TL;DR: In this article, the authors examined how micro-finance loans affect poor borrowers, and found that microfinance is a promising tool for addressing the grand challenge of global poverty, yet they know little about how m...
Abstract: Microfinance is a promising tool for addressing the grand challenge of global poverty. Yet, while many studies have examined how microfinance loans affect poor borrowers, we know little about how m...
143 citations
TL;DR: In this paper, the authors examine how institutional logics, related to market and religion, shape the nature and amount of capital acquired by micro-finance organizations (MFOs).
133 citations
TL;DR: Many social problems reflect sets of beliefs and practices, or "institutional logics" that operate at the societal level and rationalize the marginalization of certain categories of people.
Abstract: Many social problems reflect sets of beliefs and practices—or “institutional logics”—that operate at the societal level and rationalize the marginalization of certain categories of people. Studies ...
132 citations
TL;DR: In this article, the authors apply the fixed-effects two-stage least squares approach to a panel of 71 developing countries over the period 2002-2011 and find that while banks have some ability to reduce poverty, MFIs do not, at least at the aggregate level.
121 citations
TL;DR: In this article, the authors examined the impact of institutional financial services on farmers' adoption of agricultural technology in Ethiopia and found that access to institutional finance has a significant positive impact on both the adoption and extent of technology use.
109 citations
TL;DR: The authors proposed an alternative explanation of the limits of informal finance: altruistic ties reduce agency problems in financing, but such ties also increase the entrepreneur's aversion to failure, and thus constrain growth even though they relax financing constraints.
Abstract: The constraint on informal finance is commonly taken to be high costs and limited supply. But the majority of informal investors—family and friends—is often willing to supply funds at negative returns, and yet many borrowers tap family and friends only as a last resort. We explain this paradox with a theory based on altruistic ties between the entrepreneur and his family and friends, and propose an alternative explanation of the limits of informal finance: Altruistic ties reduce agency problems in financing. But such ties also increase the entrepreneur’s aversion to failure. This makes financing from family and friends unattractive, and undermines the entrepreneur’s willingness to take risks. Altruistic ties thus constrain growth even though they relax financing constraints. We relate this insight to the limited success of group-based microfinance in generating entrepreneurial growth. Our theory underscores the value of impersonal transactions, and implies that even counterparties with social ties benefit from formal contracts and third-party intermediation. This sheds light on social-formal financial institutions, such as community funds, crowd funding, and social lending intermediaries.
92 citations
TL;DR: The authors explored how informal microfinance institutions (IMFIs) support development-led tourism entrepreneurship through providing microcredit and development opportunities to small tourism firms (STFs), as well as undertaking communitarian projects and outreach activities that promote the business activities of STFs.
86 citations
TL;DR: In this paper, the authors analyzed whether financial and social efficiency are mutually exclusive in a context of implicit subsidies by the state and international donors, and they showed that there is no support to believe that such a trade-off exists.
Abstract: A major debate in microfinance focuses on the existence of a trade-off between the financial sustainability of microfinance institutions (MFIs) and their outreach to poor clients. This paper adds to this debate by analyzing whether financial and social efficiency are mutually exclusive in a context of implicit subsidies by the state and international donors. We use data from a sample of 28 Vietnamese MFIs and apply Data Envelopment Analysis (DEA) to identify the existence of a trade-off. Our analysis shows that for Vietnamese MFIs financial and social efficiency are not related. We interpret this as evidence for the fact that there is no support to believe that there is such a trade-off. Subsidies, based on which most Vietnamese MFIs currently operate, helps them to show high financial efficiency, while at the same time being able to attain their social goals. Nevertheless, this model may not be sustainable in the long-term.
77 citations
TL;DR: In this article, the authors used proprietary data on 1,335 micro-finance institutions between 2005 and 2009, jointly serving 80.1 million borrowers, to calculate the costs of micro finance and other elements of the microfinance business model, finding that on average, subsidies amounted to $132 per borrower, but the distribution is highly skewed.
Abstract: Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper uses proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers, to calculate the costs of microfinance and other elements of the microfinance business model. It calculates that on average, subsidies amounted to $132 per borrower, but the distribution is highly skewed. The median microfinance institution used subsidies at a rate of just $26 per borrower, and no subsidy was used by the institution at the 25th percentile. These data suggest that, for some institutions, even modest benefits could yield impressive cost-benefit ratios. At the same time, the data show that the subsidy is large for some institutions. Counter to expectations, the most heavily-subsidized group of borrowers is customers of the most commercialized institutions, with an average of $275 per borrower and a median of $93. Customers of nongovernmental organizations, which focus on the poorest customers and women, receive a far smaller subsidy: the median microfinance nongovernmental organization used subsidy at a rate of $23 per borrower, and subsidy for the nongovernmental organization at the 25th percentile was just $3 per borrower.
76 citations
TL;DR: In Bangladesh, microfinance participation may be associated with a higher probability of experiencing domestic violence for women with relatively better economic status, but not for the poorest of the poor.
Abstract: This article examines domestic violence among women who participate in microfinance in Bangladesh. Secondary analysis of survey data from nationally representative Bangladesh Demographic and Health Survey was used to investigate the association between microfinance participation and domestic violence of 4,163 ever-married women between the ages of 18 and 49 years. Outcome measure is experience of domestic violence as measured by a modified Conflict Tactics Scale (CTS) and predictor variables include microfinance, binary indicator of relatively better economic status, autonomy, decision-making power, and demographic variables. The likelihood of experiencing domestic violence was not found to vary with microfinance participation. However, the interaction effect of microfinance and better economic status was found to be significantly associated with domestic violence (9% increased probability). Experience of domestic violence was negatively associated with older age, higher education of the husband, and autonomy. In Bangladesh, microfinance participation may be associated with a higher probability of experiencing domestic violence for women with relatively better economic status, but not for the poorest of the poor.
59 citations
TL;DR: According to the results of the few studies in which changes in empowerment were measured, membership of the relatively large and well-established microfinance schemes generally led to increased empowerment but this did not necessarily translate into improved health outcomes.
Abstract: The systematic review was funded by the United Kingdom Department of Health through the Public Health Research Consortium.
01 Jan 2016
TL;DR: In this paper, the authors view the growth strategy adopted by the micro-finance sector and its impact on performance of the microfinance institutions and conclude that the issue of sustainability would not have been as central had the sector adopted an intensive growth strategy.
Abstract: This paper views the growth strategy adopted by the microfinance sector and its impact on performance of the microfinance institutions. To strike a balance between outreach and poverty alleviation, an intensive growth strategy would have been more cost effective at the initial stages of development. This would have reflected in improved performance, efficiency and productivity. Instead the sector adopted an extensive growth strategy which involved huge investment in physical infrastructure and rapid increase in recruitment and branch network. Thus, the credit constrained institutions had to focus more on sustainability than their primary objective of social support. The issue of sustainability would not have been as central had the sector adopted an intensive growth strategy. The six dimensions of outreach examined also indicate that the targets set were modestly attained as breadth of outreach is below the target outreach, depth of outreach is concentrated in big urban cities, scope of outreach is mostly limited to credit. The financial performance of the sector is weak, its cost per borrower is increasing and productivity ratios are low. Growth of the sector is being led by a few unsustainable institutions that are neither operationally nor financially self-sufficient. This approach has already impacted the growth of microfinance in the last few years and is likely to continue to impact the growth and performance of the sector unless more funds are injected.
TL;DR: In this paper, a credit score system for socially responsible loans is presented, where the authors evaluate social and financial aspects of the borrower using multi-criteria decision making (MCDM) to quantify the loan impact on the achievement of Millennium Development Goals.
Abstract: Ethical banking, microfinance institutions or certain credit cooperatives, among others, grant socially responsible loans. This paper presents a credit score system for them. The model evaluates social and financial aspects of the borrower. The financial aspects are evaluated under the conventional banking framework, by analysing accounting statements and financial projections. The social aspects try to quantify the loan impact on the achievement of Millennium Development Goals such as employment, education, environment, health or community impact. The social credit score model should incorporate the lender’s know-how and should also be coherent with its mission. This is done using Multi-Criteria Decision Making (MCDM). The paper illustrates a real case: a loan application by a social entrepreneur presented to a socially responsible lender. The decision support system not only produces a score, but also reveals strengths and weaknesses of the application.
TL;DR: In this article, a decision support system to facilitate micro credit granting is proposed using a multicriteria evaluation, and the assessment of social impact is performed by calculating the Social Net Present Value.
TL;DR: In this paper, the profit orientation of a micro-finance institution affects its decision to extend loans to business start-ups, and the use of a propensity score matching technique to correct for any potential endogeneity problem provides more confidence that the suggested association is not a spurious correlation.
Abstract: This article examines whether the profit orientation of a microfinance institution (MFI) affects its decision to extend loans to business start-ups. Based on information from 198 MFIs in 65 countries, we show that for-profit MFIs are less likely to provide financial capital to business start-ups than their not-for-profit counterparts. This results from the adoption of a dominant ‘commercial’ logic by for-profit MFIs, which motivates them to maximize profit by extending loans to less risky ventures with mature projects. In contrast, a dominant ‘development’ logic motivates not-for-profit MFIs to alleviate poverty through supporting the creation of new ventures. The use of a propensity score matching technique to correct for any potential endogeneity problem provides us with greater confidence that the suggested association is not a spurious correlation.
28 Jun 2016
TL;DR: In this article, the mediating role of social capital in financial literacy and financial inclusion relationship in rural Uganda was examined and the results revealed that social capital is a significant mediator in the relationship between financial literacy this article.
Abstract: Purpose
The purpose of this paper is to examine the mediating role of social capital in financial literacy and financial inclusion relationship in rural Uganda. The major aim is to establish the role of social capital in the relationship between financial literacy and financial inclusion.
Design/methodology/approach
The paper adopts and uses MedGraph programme (Excel version 3.0), Sobel and Kenny and Baron tests to test the mediation effect of social capital in the relationship between financial literacy and financial inclusion.
Findings
The results reveals that social capital is a significant mediator in the relationship between financial literacy and financial inclusion of rural poor in Uganda. Financial literacy did not have a direct effect on financial inclusion, but through full mediation of social capital. Existence of social capital into the relationship boosts the relationship between financial literacy and financial inclusion by 61.6 per cent among rural poor households in Uganda. Thus, the finding suggests that with the absence of social capital, financial literacy may fail to enhance the level of financial inclusion among rural poor households in Uganda.
Research limitations/implications
This study adopted only single research approach using a questionnaire. However, future research through interview may be of importance. Besides, for the purpose of triangulation, a study involving financial institutions’ staff may be viable. Moreover this study was limited by the fact that it was cross-sectional. Furthermore, a longitudinal study may be useful in future to investigate the mediating impact of social capital spanning over a long period of time.
Practical implications
Managers, policymakers and financial inclusion practitioners should advocate and embark on building social capital among rural communities, so as to improve on the level of financial inclusion.
Originality/value
While a large body of research has been carried out on financial literacy, this paper is the first to test the mediating role of social capital in the relationship between financial literacy and financial inclusion, especially in rural Uganda. This study generates evidence and contributes to the powerful influence of social capital in enhancing the level of financial inclusion based on financial literacy.
TL;DR: It is shown that relational styles that are consistent facilitate a clear understanding of expectations and thus exchange and mitigates the negative impact of a broken loan officer–client tie.
Abstract: Social scientists have long considered what mechanisms underlie repeated exchange. Three mechanisms have garnered the majority of this attention: formal contracts, relational contracts, and relationally embedded social ties. Although each mechanism has its virtues, all three exhibit a common limitation: an inability to fully explain the continuation and stability of intertemporal exchange between individuals and organizations in the face of change. Drawing on extensive quantitative data on approximately 450,000 microfinance loans made by a microfinance institution in Mexico from 2004 to 2008 that include random assignment of loan officers, this research proposes the concept of ”relational styles” to help explain how repeated exchange is possible in the face of personnel change. We define relational styles as systematically reoccurring patterns of interaction employed by social actors within and across exchange relationships—in this paper, between microfinance clients and loan officers. We show that relati...
TL;DR: In this paper, the authors examine how the geographical proximity to a microfinance bank affects financial inclusion and find that ProCredit is more likely to open a new branch in areas with a large share of low-income households.
Abstract: We examine how the geographical proximity to a microfinance bank affects financial inclusion. We study the expansion of the branch network of ProCredit banks in South-East Europe between 2006 and 2010. 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, this increase is particularly strong among low-income households, older households, and households which rely on transfer income.
TL;DR: The authors applied an institutional perspective to a current debate in social entrepreneurship about the relative effectiveness of commercial vs non-profit methods of building inclusive markets for the poor, and found that in countries with a low level of state fragility, it was less costly to serve the poor and decreased pressure on commercial actors to shift to wealthier clients to achieve profitability.
Abstract: This study applies an institutional perspective to a current debate in social entrepreneurship about the relative effectiveness of commercial vs non-profit methods of building inclusive markets for the poor. While some observers argue that for-profit ventures are needed to serve the poor on a large scale, others express concern that commercialization causes mission drift, a phenomenon where ventures migrate to wealthier clients over time. A multilevel analysis of 2679 for-profit and non-profit microfinance lenders in 123 countries over 15 years supported the hypotheses that commercialization contributes to mission drift away from market inclusivity, but that national levels of “state fragility” moderate this effect. In countries with a low level of state fragility, it was less costly to serve the poor, which decreased pressure on commercial actors to shift to wealthier clients to achieve profitability. An important implication of this finding is that institutions influence not only the number of entrepreneurs found in a particular location but also the social impact of entrepreneurial strategies and actions.
TL;DR: In this article, the authors argue that Bangladesh's highly successful Grameen model with the allegedly "universalizable" version of India's SKS MicroFinance crisis is a comparison between the two models.
Abstract: This article grapples with the causes of India’s microfinance crisis. By contrasting Bangladesh’s highly successful Grameen model with the allegedly “universalizable” version of India’s SKS Microfi...
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01 Jan 2016
TL;DR: In this paper, an econometric analysis of household survey data from Bangladesh shows that micro-borrowing has indeed reduced borrowing from informal sources, thereby demonstrating micro-finance as an effective alternative source of finance to the poor.
Abstract: Microfinance provides an alternative source of finance to the poor and women, who, if without access to formal banks, have access to a variety of informal lenders. As microfinance is relatively cheaper than informal finance, access to microfinance is expected to reduce household borrowing from informal sources. Microfinance is also expected to increase household savings by providing an alternative facility for savings mobilization from the poor. An econometric analysis of household survey data from Bangladesh shows that micro-borrowing has indeed reduced borrowing from informal sources, thereby demonstrating microfinance as an effective alternative source of finance to the poor. Micro-borrowing is also found to increase voluntary savings, thus assuring that an appropriate facility can raise household savings even in a poor country such as Bangladesh. Of course, impacts of microfinance vary by the gender of borrowers. The savings impact of micro-borrowing is more pronounced for women than for men. In contrast, the informal finance impact is more pronounced for men than for women.
TL;DR: In this article, the authors adopted the Malmquist total factor productivity approach with a balanced panel dataset of 162 micro-finance institutions ranging from 2007 to 2012 to measure productivity performance.
Abstract: The productive employment of scarce resources to achieve financial sustainability and social outreach among microfinance institutions (MFIs) has become a key concern of policymakers and practitioners. In view of its importance, this study adopted the Malmquist total factor productivity approach with a balanced panel dataset of 162 MFIs ranging from 2007 to 2012 to measure productivity performance. The results indicate that the microfinance sector in Bangladesh exhibited 4.3 % in overall productivity progress, attributed mainly to better managerial efficiency. Further splitting the output into financial and social outreach, known as ‘dual mission’, this study observed 3.9 and 5 % productivity progress per annum respectively, with five best practising MFIs being identified due to their balanced growth in both objectives. Although, depth of social outreach productivity (proxy by average loan size) recorded successive progress during the study period (2007–2012), breadth of social outreach productivity (proxy by number of savers) improved little due to the lack of innovative savings products. Thus, basing their designing of comprehensive savings products and development of appropriate synergies on the best five performing MFIs, the government and respective authorities should stimulate the transfer of their innovative practices to other MFIs to enhance sectorial growth and better serve the poor community.
TL;DR: In this paper, the authors examine the financial practices of low-income people and the social relational dimensions of debt that underlie these transactions, and contrast these with widely used services of informal groups and banks' services.
Abstract: Financial inclusion policy has been ignited globally by the rise of money transfer services over mobile phones led by the example of Kenya. This article examines the financial practices of low-income people and the social relational dimensions of debt that underlie these transactions, and contrasts these with widely used services of informal groups and banks’ services. This highlights a “fiduciary culture” where relationships of equality and “negotiability” dominate in contrast to a tendency towards hierarchical relations with banks. This questions policy-makers’ expectations that mobile money transfer will seamlessly facilitate engagement with the formal sector for savings and credit.
TL;DR: In this article, the authors examined the links between financial inclusion and the Islamic financial services industry in Muslim countries and found that despite the growth in the financial sector in many Muslim countries over the past few decades, many individuals and firms are still financially excluded.
Abstract: Using a qualitative analysis, the paper examines the links between financial inclusion and the Islamic financial services industry in Muslim countries. The findings show that, despite growth in the financial sector in many Muslim countries over the past few decades, many individuals and firms are still financially excluded. An analysis of the use of and access to financial services by adults and firms also shows that most Muslim countries lag behind other emerging economies in both respects, with a rate of financial inclusion of only 27%. Cost, distance, documentation, trust, and religious requirements are among the important obstacles. In addition, not surprisingly, the extent of Islamic microfinance is very limited, small by international standards; it accounts for a small proportion of microfinance, about 0.5% of global microfinance, and lacks a cost-efficient service model. This study suggests that Islamic instruments for redistributing income such as awqaf, qard-al-hassan, sadaqa, and zakah, can play...
TL;DR: In this article, the impact of micro-finance on women-owned microenterprises' performance in Indonesia is examined, and the authors find a negative relationship between performance and financial capital and positive relationships between performance-human capital and performance-social capital.
Abstract: The purpose of this paper is to examine the impacts of microfinance on women-owned microenterprises’ (WMEs) performance in Indonesia. It especially observes how financial, human and social capital influences performance of enterprises.,Data were collected from a survey conducted in Surabaya, Indonesia’s second largest city, covering more than 100 WMEs. The ordered probit technique is applied to estimate the performance vis-a-vis financial, social and human capital relationships.,This study finds a negative relationship between performance and financial capital, and positive relationships between performance-human capital and performance-social capital. However, with respect to human capital, the level of education has a marginally significant relationship with performance.,Microcredit for the purposes of enhancing business performance might not necessarily be a good idea, if it is unable to generate higher returns. As a business develops, the volume of microcredit should be reduced, and replaced by owners’ own savings and retained profits. Regarding the non-financial factors, it might be useful for policy makers to contemplate providing incentives for spouse involvement in microenterprises run by women, and to consider them in designing credit policies. Group meetings activities should be extended to facilitate members to engage in business-related conversations and to develop social relationships. The ability of loan officers and group leaders to facilitate such conversations appears important.,To the best of the authors’ knowledge, this study provides the first in-depth understanding of the role of microfinance programmes in the case of performance of WMEs in Indonesia, one of the world’s most populous economies.
TL;DR: In this article, the authors examine the profit-oriented logics at work and raise critical questions about the moral crusade being waged over digitalizing poor people's money, and raise serious questions about empowerment through financial inclusion.
Abstract: This paper analyses the turn toward financial inclusion in general, and toward digital money and the end of cash in particular, in development policy. It examines the profit-oriented logics at work and raises critical questions about the moral crusade being waged over digitalising poor people’s money. It begins with a discussion of why financial inclusion has displaced microfinance on global development agendas, and is bringing new practices and players to the space of poverty finance. It shows how financial inclusion modifies the theory of change underlying poverty finance, with financial intermediation rather than income generation now being seen as crucial to poverty alleviation, and analyses and explains the particular emphasis on promoting cashless payment systems. As becomes evident, powerful actor coalitions (card crusaders) are assembling to push for an end of cash and the full digitalisation of poor people’s money. These crusaders pursue three holy grails: to capitalise on everyday transaction costs, to use big data generated by the poor for sale and analysis, and to exert greater governmental over poor people’s money. This raises serious questions about the possibility of empowerment through financial inclusion.
TL;DR: In this paper, the authors investigated the effects of the 2008 global financial crisis on the performance of different micro finance ownership types and found that banks and non-bank financial institutions that performed better immediately before the crisis, suffered more during the crisis and early post-crisis periods.
01 Jan 2016
TL;DR: In this paper, the authors examined the factors that influence the adoption of mobile banking by micro-finance sector in Sudan and developed hypotheses guided by Unified Theory of Acceptance and Use of Technology (UTAUT) and Technology- organization-environment (TOE) models.
Abstract: 2 * Abstract: Access to financial service has become a key phenomenon for economic development and poverty alleviation .Microfinance is one way of fighting poverty in Sudan, where most citizens are in need of it. However, despite the initial re- sults showing a positive impact of microfinance on the livelihood of low-income people in Sudan, around 8 million of the Sudanese poor people are excluded from microfinance services. One potential remedy for the limited outreach of microfi- nance in Sudan may lie within enhancing the capacity of microfinance services providers (MFPs) in the utilization of modern technology. Recent innovation in providing financial services in a convenient and efficient way is the use of mobile banking (m-banking) technology in microfinance. M-banking promises to increase the efficiency and outreach of microfinance services in developing countries. This paper tries to examine the factors that influence the adoption of m-banking by microfinance sector in Sudan. In this respect, hypotheses were developed guided by Unified Theory of Acceptance and Use of Technology (UTAUT) and Technology- organization-Environment (TOE) models. Primary data were collected from MFPs and microfinance customers in Sudan using questionnaires and interviews. The study contributes to knowledge in terms of methods used by extending aforementioned theories through adding new variables to both models by putting both models in
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TL;DR: In this paper, the authors present one-month follow-up results from an experimental study based on a hope intervention in Oaxaca, Mexico among 601 indigenous women with access to micro-finance loans.
Abstract: Work in positive psychology decomposes hope into aspirations, agency, and pathways. Operating in the context of an economic model developed with this framework, we review the literature on hope from philosophy, theology, psychology, and its relationship to emerging work on aspirations in development economics. We then present one-month follow-up results from an experimental study based on a hope intervention in Oaxaca, Mexico among 601 indigenous women with access to microfinance loans. Our early experimental results suggest that the intervention raised aspirations approximately a quarter of a standard deviation, significantly raised a hope index among the treated subjects, and had positive but statistically insignificant results on enterprise revenues and profits.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
TL;DR: In this article, the authors investigated factors affecting the adoption of agricultural technologies in Sub-Saharan Africa, specifically the role of credit market inefficiency in adoption of technologies in the region.
Abstract: Purpose
The purpose of this paper is to investigate factors affecting the adoption of agricultural technologies in Sub-Saharan Africa, specifically the role of credit market inefficiency in adoption of agricultural technologies in the region.
Design/methodology/approach
Most importantly, the paper applies a 2SLS model on a unique data set on nine agrarian countries from Sub-Saharan Africa’s intensification of food crops agriculture (Afrint) to provide evidence on how credit market inefficiency affects adoption of technologies in the sub region.
Findings
The study finds that the relationship between credit and technology adoption is one-way causal relation (i.e. credit access leads to technology adoption) as opposed to a two-way relation (i.e. mutual dependent relation). Further, the results indicate that credit market inefficiency can be a major barrier to the adoption of yield enhancing technologies in Sub-Saharan Africa. Further, the study showed mixed results for household variables. The results give credence to studies that highlight the importance of infrastructure and risk control in the adoption of new technologies.
Research limitations/implications
The study is limited to only nine countries in Sub-Saharan Africa. Thus, the findings and interpretations should be considered as such. Further, there is the need for further research that considers all the region so as to establish whether or not there is a relationship between credit market inefficiencies and technology adoption in the region.
Practical implications
The policy implication is that microfinance institutions should consider scaling up their credit services to ensure that more households benefit from it, and in so doing technology adoption will be enhanced.
Originality/value
The main contribution of the study lies in its use of a unique data set from Sub-Saharan Africa’s intensification of food crops agriculture (Afrint) to investigation relationship between credit market inefficiency and technology adoption.