Showing papers on "Microfinance published in 2017"

Microfinance and the business of poverty reduction: Critical perspectives from rural Bangladesh

Abstract: In this article we provide a critical analysis of the role of market-based approaches to poverty reduction in developing countries. In particular, we analyse the role of microfinance in poverty alleviation by conducting an ethnographic study of three villages in Bangladesh. Microfinance has become an increasingly popular approach that aims to alleviate poverty by providing the poor new opportunities for entrepreneurship. It also aims to promote empowerment (especially among women) while enhancing social capital in poor communities. Our findings, however, reflect a different picture. We found microfinance led to increasing levels of indebtedness among already impoverished communities and exacerbated economic, social and environmental vulnerabilities. Our findings contribute to the emerging literature on the role of social capital in developing entrepreneurial capabilities in poor communities by highlighting processes whereby social capital can be undermined by market-based measures like microfinance.

Impact of savings groups on the lives of the poor.

Abstract: Savings-led microfinance programs operate in poor rural communities in developing countries to establish groups that save and then lend out the accumulated savings to each other. Nonprofit organizations train villagers to create and lead these groups. In a clustered randomized evaluation spanning three African countries (Ghana, Malawi, and Uganda), we find that the promotion of these community-based microfinance groups leads to an improvement in household business outcomes and women's empowerment. However, we do not find evidence of impacts on average consumption or other livelihoods.

Can self-help group programs improve women’s empowerment? A systematic review

Abstract: This mixed-methods systematic review focuses on the impact of women’s self-help groups (SHGs) on women’s economic, social, psychological, and political empowerment. Both governmental and non-governmental institutions spend formidable resources facilitating SHGs in low-and middle-income countries in South Asia and other developing countries, under the premise that access to microfinance, training, and group support can enhance women’s empowerment. We found that women’s economic SHGs have positive effects on economic and political empowerment, women’s mobility, and women’s control over family planning. The estimated effect sizes range from 0.06–0.41 standardised mean differences. We did not find evidence for positive effects of SHGs on psychological empowerment. The qualitative research further suggests that the positive effects of SHGs on empowerment run through mechanisms that are associated with familiarity in handling money, independence in financial decision-making, solidarity, social networks,...

Do Credit Constraints Limit Entrepreneurship? Heterogeneity in the Returns to Microfinance

Abstract: Can improved access to credit jump-start microenterprise growth? We examine subjects in urban Hyderabad, India, six years after microfinance–an intervention commonly believed to lower the cost of credit and spark business creation–was randomly introduced to a subset of neighborhoods. We find large benefits both in business scale and performance from giving “gung-ho entrepreneurs” (GEs)–those who started a business before microfinance entered–more access to microfinance. Notably, these effects persist two years after microfinance was withdrawn from Hyderabad. However, any persistent benefits to “reluctant entrepreneurs” (REs), those without prior businesses, are much more meager and generally indistinguishable from zero. A model of technology choice in which REs can only access a diminishing-returns technology, while GEs can also access a technology with high fixed costs but high returns, can generate dynamics matching those observed in the data. These results suggest that heterogeneity in entrepreneurial ability is important and persistent; and that lenders entering a new market may be better off by focusing on borrowers at the intensive rather than extensive margin. We also provide some of the first evidence on the relationship between formal and informal credit from an individual’s social network. While microfinance crowds out informal finance for the novices, the informal financial relationships of seasoned entrepreneurs exhibit complementarities with access to formal credit.

Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia

Abstract: This paper investigates the impact of Islamic microfinance on rural households' welfare in Indonesia. Using a survey questionnaire, this study explores two group of financing in Islamic microfinance, equity and debt-based financing. A two-year panel dataset and a double difference-in-difference approach are used to examine the impact of the two Islamic microfinance groups on rural household in Indonesia. The study also evaluates shari'a compliance based on the national shari'a board of Indonesia. The study results indicate that both financing groups exhibit a positive and significant impact on rural households' income, but equity financing performed better than debt-based financing. Moreover, the shari'a compliance evaluation indicates that clients received financing that is comparable with the national shari'a board of Indonesia.

The effects of microfinance on women's empowerment: New evidence from Bangladesh

Abstract: Previous literature has produced inconclusive evidence on the link between microcredit and women’s empowerment. This study, therefore, has re-visited the issue by conducting a household survey in the 4 districts of Bangladesh to examine whether microcredit is really empowering. In doing so, we have done a thorough review of the previous literature. Our results from the logistic regression indicate that microfinance has actually increased women’s empowerment in Bangladesh. We have found positive impact of most of the selected indicators on women’s empowerment. However, for achieving full benefit of microfinance in empowering women it must be supplemented by a significant amount of skills training and educational opportunities for these poor women and intensive awareness campaigns with an integrated approach.

Microfinance: Where are we today and where should the research go in the future?:

Abstract: Over the past two decades, there have been substantial efforts to expand the impact of microfinance around the world, especially in emerging economies. This commentary and Special Issue of Internat...

Formal and informal credit markets and rural credit demand in China

Abstract: Credit markets play essential roles in financial institutions. In developing countries, especially in emerging market countries which are in the process of restructuring of industry, it is important to identify the reasons of credit constrains by an efficient way to facilitate economic transaction. On common phenomena in China rural credit markets is the informal credit market develop rapidly, it is very common for rural households to both through their networks. However it is inadequate in addressing rural credit needs. This research has 3 specific objectives: (1) Explore the relative importance of formal vs. informal rural credit markets in China (2) Identify factors determining households' choice of credit sector and the size of loan rural households borrowed from formal or informal credit markets. (3) Explore the degree to which households are constrained in credit access and identify the underlying factors. This paper also has some policy implications based on the empirical studies. The government can release the households constrain by making the formal credit more flexible and increasing the informal credit such as the microfinance for women.

Microfinance and Gender: Issues, Challenges and the Road Ahead

Abstract: This special collection examines the claim that microfinance promotes gender equality. The focus is on three areas of the debate: first, the question of how successful microfinance has been in empowering women; second, whether and how negative gender discrimination operates within the sector; third, how power relations within and beyond the household shape the context and outcomes of microfinance initiatives. The papers in this collection demonstrate the divergence of circumstances and emphasise the need to go beyond the past searches for a simple narrative regarding the impact of microfinance. Rather, as the sector evolves and is incorporated into the mainstream financial system, the challenge ahead for researchers is to marshal the evidence on gendered dynamics to ensure that the gains made are built on through deeper understanding of why impact outcomes and processes differ and use this to inform new initiatives to further gender equality.

The Effects of Gendered Occupational Roles on Men’s and Women’s Workplace Authority: Evidence from Microfinance

Abstract: The gendering of occupational roles affects a variety of outcomes for workers and organizations We examine how the gender of an initial role occupant influences the authority enjoyed by individual

Microfinance Intervention in Poverty Reduction: A Study of Women Farmer-Entrepreneurs in Rural Ghana

Abstract: This paper examines microfinance intervention in rural poverty reduction in Ghana by surveying 100 rural women farmer-entrepreneurs. The findings reveal that microfinance interventions that emphasize both credit provision and social intermediation improve access to credit, improve business performance, and contribute to a higher standard of living for female farmer-entrepreneurs and their families. The results show that the microfinance scheme has been successful due to a strong social network and group relationships among the farmers. An implication of the study is that poverty reduction programs in developing countries need to emphasize social and human development components in microfinancing policies.

Experiencing microfinance: Effects on poor women entrepreneurs’ livelihood strategies

Abstract: Purpose The purpose of this paper is to address the problem of why the poorest, most disadvantaged groups such as rural African women, benefit less from microfinance The authors focus on the perception and experiences of ordinary rural entrepreneurial women on microfinance in a context of extreme poverty and where family responsibility and economic activities are closely intertwined Design/methodology/approach The authors purposefully sampled 15 poor females with small businesses in two Nigerian villages The key characteristic guiding the sampling was that the respondents had to be poor The authors held two focus groups and ten interviews to capture their experience and understanding of microfinance The authors used thematic analysis to establish patterns in the data Findings For poor entrepreneurial women, a livelihood for survival, putting food on the table and paying school fees are priorities, not business growth They see microcredit as debt and a great risk that could lead to irreversible losses Family responsibilities for basic consumption needs of the household can affect their ability to repay loans; perceived dangers of microcredit may outweigh potential benefits Research limitations/implications The theories, especially functionalist economic theory, do not take account of microfinance users’ experiences Practical implications Microfinance should be aware that the poorest perceive microcredit differently and should eliminate the intimidating barriers raised to them Instead of providing a means for the poor to alleviate poverty or coping strategies for them to manage cash flows and risks, microfinance causes fear and anxiety by demanding high rate of return in a very short period of time Social implications The very poorest, who should be the beneficiaries of microfinance, are less likely to be able to benefit The condition of poverty creates different realities for those at the base of the pyramid Originality/value This research questions the neoliberal rationality assumptions that microfinance rest on; the paper fills a gap in the literature, ie how the potential borrowers themselves living in deep-rooted poverty perceive and experience microfinance

Aid Volatility and Social Performance in Microfinance

Abstract: Uncertainty makes objectives harder to reach. This article examines whether uncertainty in subsidies leads to mission drift in microfinance institutions (MFIs). Using a worldwide sample of 1,151 MFIs active in 104 countries, we find that interest rates increase with aid volatility while average loan size (ALS) is inversely related to aid volatility. These results suggest that MFIs consider ALS as a signaling device for commitment to their social mission, but use interest rates as an adjustment variable to cope with uncertainty. The policy prescription to donor agencies wishing to curtail the rise in interest rates is to deliver subsidies predictably and transparently.

Intellectual capital and competitive advantage in Uganda’s microfinance industry

Abstract: Purpose The paper examines individual contribution of intellectual capital elements to competitive advantage. The purpose of this paper is to explore the weight of individual intellectual capital elements in explaining competitive advantage in Uganda’s microfinance industry. Design/methodology/approach Hierarchical regression was used because of its capacity to indicate precisely what happens to the model as different predictor variables are introduced. Findings This study confirms that the three intellectual capital elements are the strong predictors of competitive advantage and they account for 44 percent of variance in competitive advantage. However, the order of importance of these variables in explaining the variance in competitive advantage in the microfinance industry (basing on their standardized β values) is relational capital, structural capital and human capital. Research limitations/implications Only a single research methodological approach was employed and future research through interviews could be undertaken to triangulate the data. Furthermore, the findings from the present study are cross-sectional; future research should be undertaken to examine the longitudinal effects of intellectual capital elements. Practical implications The findings can help the management to intensify initiatives to encourage greater understanding and acceptance of the concept of intellectual capital that boosts competitive edge in the industry. Originality/value This is the first study that focuses on testing the individual contribution of intellectual capital dimensions to competitive advantage in Uganda’s microfinance institutions.

Microfinance and economic development

Abstract: Microfinance is generally seen as a way to fix credit markets and unleash the productive capacities of poor people who are dependent on self-employment. The microfinance sector has grown quickly since the 1990s, paving the way for other forms of social enterprise and social investment. But recent evidence shows only modest average impacts on customers, generating a backlash against microfinance. This paper reconsiders the claims about microfinance, highlighting the diversity in evidence on impacts and the important (but limited) role of subsidies. The paper concludes by describing an evolution of thinking: from microfinance as narrowly construed entrepreneurial finance toward microfinance as broadly construed household finance. In this vision, microfinance yields benefits by providing liquidity for a wide range of needs rather than solely by boosting business income.

Microfinance and entrepreneurship: An introduction

Abstract: As microfinance gains increasing attention and application as a financing mechanism for entrepreneurs at the base of the economic pyramid, this Special Issue of International Small Business Journal aims to enhance scholarly understanding of how microfinance fosters entrepreneurial activity. Microfinance brings a range of financial services, including microcredit loans, savings, and insurance, within the reach of millions of poor households not served by traditional banks. This introduction summarizes the articles in this Special Issue of International Small Business Journal on ‘Microfinance’, which address a range of topics in this important domain of research and practice.

Women Empowerment Through Microfinance: Empirical Evidence from Ghana

Abstract: Microfinance programmes are currently promoted as a key strategy for simultaneously addressing both women empowerment and poverty alleviation in Ghana. However, there has been a hot debate on the potency of microfinance in empowering the Ghanaian women. Apparently, this research was conducted to analyse the impact of microfinance services on the economic and social empowerment of women in Ghana. A purposive non-probability sampling technique was utilized in a 500 sample-size selection of female microfinance customers from Ashanti, Greater Accra, Central, Eastern and Western Regions of Ghana (100 from each region). For this study, SPSS and STATA Statistical tools were used to analyze the data and the ordered probit model was used as the estimation model. Glaring in this study is a statistically significant positive relationship between microfinance and women empowerment, for both economic and social but such relationship is dependent on marital status and educational level of the women with age having no controlling effect. Nevertheless, it is also evident in this study that women encounter myriad problems in accessing microfinance services of which high interest rate is paramount. Recommendations have been given on how microfinance outreach programmes could be enriched especially among the rural women since enhanced microfinance accessibility could be a perfect tool to accelerate economic and social empowerment of women in Ghana.

Do Microfinance Institutions Benefit from Integrating Financial and Nonfinancial Services

Abstract: This article examines the impact of microfinance ‘plus’ (i.e. coordinated combination of financial and nonfinancial services) on the performance of microfinance institutions (MFIs). Using a global data set of MFIs in 77 countries, we find that the provision of nonfinancial services does not harm nor improve MFIs’ financial sustainability and efficiency. The results however suggest that the provision of social services is associated with improved loan quality and greater depth of outreach.

Microcredit and Survival Microenterprises: The Role of Market Structure

Abstract: Poverty remains a pervasive problem all over the world, but the problem is worst in underdeveloped areas like Africa. While microfinance is supposed to address this problem through the promotion of viable businesses, it has not been very successful in helping survival microenterprises, i.e., businesses that the very poor with limited human capital have access to, in sectors with low barriers to entry and selling undifferentiated products. In this paper, I examine the role of market structure in mediating the impact of micro-lending to such survival enterprises. While there have been many evaluations of microfinance institutions (MFIs), there have been very few that look at market conditions as an input into the success of micro-lending. My theoretical analysis suggests that when introducing an extensive program of microcredit in undeveloped and relatively isolated rural areas, it is important to look at how the market structure mediates the impact of the provision of loans on the demand and supply for the end-product or service. I present some empirical evidence, which provides partial confirmation that MFIs are not currently taking these considerations into account.

Entrepreneurship and financial inclusion through the lens of instrumental freedoms

Abstract: This article investigates the interrelated nature of instrumental freedoms and how they combine to engender financial inclusion among low-income entrepreneurs. Drawing from Sen’s capabilities approach, we emphasize a need for understanding the freedoms associated with institutional arrangements and the complex causal processes that lead to financial inclusion among micro-entrepreneurs. We perform a fuzzy set qualitative comparative analysis of 19 countries in Latin America and the Caribbean. The findings indicate four causal combinations for financial inclusion. Our findings indicate that no single instrumental freedom is necessary for financial inclusion; it does not necessarily depend on the provision of microfinance and that political freedom is an important peripheral condition for inclusion. This allows us to question some of the assumptions about how microfinance operates amid a set of complex institutional instrumental freedoms.

Board and management gender diversity and financial performance of microfinance institutions

Abstract: We investigate board and management gender diversity issues in the microfinance setting with data (2010–2014) drawn from 494 microfinance institutions across 76 countries. We find that board gender diversity positively predicts management gender diversity. On the effects of board and management gender diversity on the financial performance of microfinance institutions (MFIs), we find that whereas board gender diversity is negatively and significantly related to MFI financial performance, management gender diversity is negatively but insignificantly related to MFI financial performance. We show that 50% or higher diversity in either board or management is the threshold at which gender diversity is productive to MFIs. However, danger exists that an MFI that combines 50% or higher female representation on its board with 50% or higher female representation on its management team is likely to experience a tumble in its financial performance. The overall effect of these outcomes is that the push for mor...

Performance and Capital Structure of Microfinance Institutions in Eastern Europe and Central Asia

Abstract: Recent trends in microfinance, such as commercialization and deposit mobilization, highlight the importance of investigating the link between sources of funds and performance by microfinance instit...