Showing papers on "Microfinance published in 2018"

Contesting Financial Inclusion

Abstract: This contribution critically assesses financial inclusion as an intervention in the development space. It examines the turn from microfinance to financial inclusion, with the introduction of new actors and practices; new ideas and ideologies; new theories of change; and new expectations toward clients. It then considers three key issues and contests the arguments made by proponents of financial inclusion about them: first, the argument that financial inclusion facilitates broader development outcomes; second, the claim that poor people gain poverty alleviation through financial inclusion; and third, the suggestion that financial inclusion is good business. In all three areas, the author highlights shortcomings in the evidence base and argues that high expectations of financial inclusion serving as a core pro†poor, private†sector led development intervention lack justification. Rather, financial inclusion should be recognized as a contested and contestable enterprise.

Taking Trade-offs Seriously: Examining the Contextually Contingent Relationship Between Social Outreach Intensity and Financial Sustainability in Global Microfinance

Abstract: A key insight from research on hybrid organizing is that the joint pursuit of competing goals exposes an enterprise to potentially problematic tensions and trade-offs. Yet while studies have examin...

Determinants of the performance of microfinance institutions: a systematic review

Abstract: Microfinance institutions (MFIs) generally aim at improving the access of the poor to financial services while at the same time being financially sustainable. But what do we know about how MFIs reach and combine these two goals? We carry out a systematic review of close to 170 papers discussing the determinants of the financial and social performance of MFIs. The review shows that the most important determinants addressed in the literature are MFI characteristics (size, age and type of organization), their funding sources, the quality of organizational governance and the MFIs' external context such as macro-economic, institutional and political conditions. The evidence on these issues is rather mixed. Moreover, the direction of the relationship between these drivers and MFI performance depends on the context, particularly the country-specific context. Finally, there is a lack of consensus in the literature on the measurement of financial and social performance. Due to the complexity of the concept, we argue that social performance should only be assessed by using a multidimensional perspective. This can be done either by applying recent and holistic social performance measures such as the SPI4, or at least by using a combination of proxies, such as outreach, gender and rural measures.

The challenge of rural financial inclusion – evidence from microfinance

Abstract: Financial inclusion is said to foster development and growth. However, progress in financial inclusion has been slow in rural areas where poverty is most pronounced. This is often attributed to higher transaction costs, higher risks and a more unfavourable contracting environment which makes it more difficult for financial institutions to achieve and maintain sustainability in rural compared to urban areas. Based on data covering 772 microfinance institutions (MFIs) over the period 2008–2013, we test whether rural financial inclusion, notably lending to rural borrowers, is hampered by stronger sustainability challenges than inclusion in urban markets. Our results suggest that a higher share of rural borrowers has no direct effect on MFI sustainability. However, we find that MFIs with a higher share of rural borrowers are less able to exploit economies of scale and productivity effects. Thus, our results provide support for the view that sustainability challenges make it more difficult to achieve p...

Microfinance Performance and Social Capital: A Cross-Country Analysis

Abstract: In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial to understand under what conditions microfinance institutions (MFIs) are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis.

The Effect of Microcredit on Women Empowerment in Welfare and Decisions Making in Malaysia

Abstract: Microcredit is perceived as an effective tool to empower women, especially those who are deprived of accessing financial services. However, the literature has arrived with contradictory evidence and demonstrates that the effect of microcredit may partially or not empower women. This study intends to examine whether the access to Amanah Ikhtiar Malaysia (AIM) affects several aspects of empowerment in urban Malaysia. A cross-sectional survey was distributed to 474 old and new clients to examine the effect of microcredit on women empowerment in decision-making process and resource controlling. Based on the propensity score matching, our result shows that the access to AIM microcredit affects positively women’s monthly income. In addition, microcredit empowers women borrowers in a set of household decisions making including mobility, daily expenditure, children school, health expenditure and loan order decision.

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.

Gender Biases in Bank Lending: Lessons from Microcredit in France

Abstract: The evidence on gender discrimination in lending remains controversial. To capture gender biases in banks’ loan allocations, we observe the impact on the applicants of a microfinance institution (MFI) and exploit the natural experiment of a regulatory change imposing a strict EUR 10,000 loan ceiling on microcredit. Descriptive statistics indicate that the presence of the ceiling is associated both with bank-MFI co-financing and with harsher treatment of female borrowers. To investigate causal links, we develop an econometric approach that addresses the concerns of selection biases, multicollinearity, and endogeneity. Our empirical findings suggest that the change in the MFI’s gender-related attitude was triggered by banks through co-financing. Hence, we speculate that co-financing pushes ceiling-constrained MFIs to import whatever biases in loan granting that the banks are prone to. Overall, this paper stresses that apparently benign regulations such as loan ceilings can significantly harm the women’s empowerment efforts made by MFIs.

A meta-analysis examining the nature of trade-offs in microfinance

Abstract: This meta-analysis reviews existing evidence on the ability of microfinance institutions (MFI) to achieve social and financial goals simultaneously. Through an initial screen of 3088 articles cover...

Climate change and financing adaptation by farmers in northern Nigeria

Abstract: This paper examines farmers’ perceptions of their exposure to climate change in rural northern Nigeria. It also examines whether there is a significant relationship between the exposure of farmers to climate change and their need for financial access as an adaptation strategy. Questionnaires were administered to 320 respondents in rural communities in northern Nigeria. Descriptive analysis shows that rural farmers are affected by climate change through increased temperature, prolonged dry seasons, floods, and drought, which lead to low harvest and, in turn, low income. An estimate from a non-parametric test also shows a significant relationship between farmers’ perceived exposure to climate change and their need for credit. Although the Spearman correlation results show a 63% association between exposure to climate change and the need for finance, 96% of those seeking credit to mitigate these impacts would be unable to do so due to financial exclusiveness. The paper recommends that the Central Bank of Nigeria should ensure that microfinance institutions refocus their products/services to those who need them the most in order to enhance access to financial resources and enable farmers to build resilience that will maximize post-harvest gains. Lastly, considering that climate change is a global phenomenon with local effects, perhaps the international community could support lending to smallholder farmers through central banks by insuring the loans that banks give to farmers towards financing climate change adaptation strategies.

Gender Inequality and Access to Microfinance: Evidence from Ghana

Abstract: This paper draws on the qualitative and quantitative evidence from a dataset generated from a survey of 499 households in Ghana to explore the implications of access to microfinance for the gender asset gaps. Two sets of statistical analysis are undertaken. The first is a cross-sectional regression analysis that examines the importance of microfinance for intra-household gender wealth inequality. The second uses the Oaxaca-Blinder decomposition method to examine the gaps in wealth between female-headed and male-headed households. The results show that higher access to microfinance is associated with lower gender asset gaps within and across households. The evidence suggests that targeting credit to financially constrained households, and in particular to women, can contribute to reducing poverty and gender inequality

Is women empowerment a zero sum game? Unintended consequences of microfinance for women’s empowerment in Ghana

Abstract: Purpose: Against the background of growing concerns that development interventions can sometimes be a zero-sum game, this paper examines the unintended consequences of microfinance for women empowerment in Ghana. Design/methodology/approach: The study employs a participatory mixed-method approach including household questionnaire surveys, focus group discussions and key informant interviews to investigate the dynamics of microfinance effects on women in communities of different vulnerability status in Ghana. Findings: The results of hierarchical regression, triadic closure and thematic analyses demonstrate that the economic benefits of microfinance for women is also directly associated with conflicts amongst spouses, girl child labour, polygyny and the neglect of perceived female-domestic responsibilities due to women’s devotion to their enterprises. Originality/value: In the light of limited empirical evidence on potentially negative impacts of women empowerment interventions in Africa, this paper fills a critical gap in knowledge that will enable NGOs, policy makers and other stakeholders to design and implement more effective interventions that mitigate undesirable consequences.

DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis

Abstract: Microfinance has played a key role in the fight against exclusion and the promotion of entrepreneurship in developing countries. An important question today is how to increase the reach and profitability of microfinance, in a context where subsidies are withdrawing to promote the viability and sustainability of microfinance institutions (MFIs). Efficiency analysis has found favor in this context and has attracted growing interest among professionals, partners, and researchers. Abundant empirical work has been conducted over the last ten years on this subject, in very different contexts and with different methodologies. The purpose of this article is to provide a meta-regression analysis on parametric and nonparametric estimations of Mean Technical Efficiency (MTE) in microfinance, using a data set of 262 observations from 38 studies. The results show that, in the microfinance industry, MTE scores have increased over time. However, with an MTE rate of approximately 61.1%, there is room for improving efficiency. MFIs use more resources than necessary for the results achieved in terms of outreach and revenue generated. Our results show heterogeneity of MTE according to the methodological approach of the studies. Studies with a larger number of variables (inputs and outputs) produced higher MTE scores than did those with a smaller number of variables. Studies using the variable returns to scale assumption resulted in higher MTE scores than those using constant returns to scale. In addition, those with a production approach had higher MTEs than did those using the intermediation approach, while studies of a large number of MFIs had lower scores than did those involving a small sample size. Moreover, research estimating social efficiency generated lower MTEs compared to those estimating financial efficiency. Studies using data from African MFIs obtained lower MTEs than did those on MFIs in Latin America and MENA, which confirms the poor performance of African microfinance.

Competition, Performance and Portfolio Quality in Microfinance Markets

Abstract: Growing competition in microfinance has been blamed for multiple borrowing, over-indebtedness and loan repayment crisis in recent times. Using the Boone indicator as a proxy for competition, we inv ...

Are microfinance markets monopolistic

Abstract: Do microfinance institutions (MFIs) operate in a monopoly, monopolistic competition environment or are their revenues derived under perfect competition markets? We employ the Panzar–Rosse revenue t ...

Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis

Abstract: In October 2010, the state government of Andhra Pradesh, India issued an emergency ordinance, bringing microfinance activities in the state to a complete halt and causing a nation-wide shock to the liquidity of lenders, especially those with loans in the affected state. The paper used the massive dislocation in the microfinance market to identify the causal impacts of a reduction in credit supply on consumption, earnings, and employment in general equilibrium. Using a proprietary, hand-collected district-level data set from 25 separate, for-profit microlenders matched with household data from the National Sample Survey, It was found that district-level reductions in credit supply are associated with significant decreases in casual daily wages, household wage earnings and consumption. It was also found that wages in the non-tradable sector fall more than in the tradable sector (agriculture), suggesting that one important impact of the microfinance contraction was transmitted through its effect on aggregate demand. The paper presents a simple two period, two-sector model of the rural economy illustrating this channel and show that our wage results are consistent with a simple calibration of the model.

Financing micro-entrepreneurs for poverty alleviation: a performance analysis of microfinance services offered by BRAC, ASA, and Proshika from Bangladesh

Abstract: Microfinance services have emerged as an effective tool for financing micro-entrepreneurs to alleviate poverty. Since the 1970s, development theorists have considered non-governmental microfinance institutions (MFIs) as the leading practitioners of sustainable development through financing micro-entrepreneurial activities. This study evaluates the impact of micro-finance services provided by MFIs on poverty alleviation. In this vein, we examine whether microfinance services contribute to poverty alleviation, and also identify bottlenecks in micro-finance programs and operations. The results indicate that the micro-loans have a statistically significant positive impact on the poverty alleviation index and consequently improve the living standard of borrowers by increasing their level of income.

Impact of global financial crunch on financially innovative microfinance institutions in South Asia

Abstract: The wave of global financial crises (2008–2009) caused a surge in the capital flows of developed countries particularly, between developed and developing countries. The crunch hit all financial sectors with unanticipated severity. The study evaluates the role of a country’s political practices in moderating the impact of global financial crunch on microfinance performance. Using the fixed effect panel regression method on the dataset comprising of 95 MFIs operating in South Asia from 2003 to 2012, we determine that microfinance operational capability shares a positive relationship with the institutional attributes of a country and our output reveals that impact of country’s political practices is pervasive on the financial output of MFIs, liable to different levels of implementation. The findings further reveals that MFIs situated in countries having vigorous political practices are less severely affected by the economic crunch.

Does lending to women lower sustainability of microfinance institutions? Moderating role of national cultures

Abstract: This study aims to investigate whether lending to women decreases sustainability of microfinance institutions (MFIs) and how regional characteristics where MFIs are located moderate this effect.,Financial and operating data of MFIs and national cultures are available from the MIX Market database and the Hofstede’s publications. These data are analyzed by using multiple regression models with the financial self-sustainability, proportion of women borrowers in the MFI’s lending portfolio, and dimensions of national culture as dependent, explanatory and moderating variables.,Lending to women tends to reduce sustainability of MFIs. This negative effect is more pronounced in countries ranking higher on power distance and individualism, but the effect is less serious in countries ranking higher on masculinity and uncertainty avoidance.,Many studies demonstrate that MFIs improve their repayment rates by targeting women borrowers. The increase in repayment rates, however, may not always improve their sustainability. Further, as microfinance industry increasingly diversifies geographically, regional characteristics where MFIs are located play a vital contingent role in their sustainability.

Recent finance advances in information technology for inclusive development: a systematic review

Abstract: The overarching question tackled in this paper is: to what degree has financial development contributed to providing opportunities of human development for those on low-incomes and by which information technology mechanisms? We systematically review about 180 recently published papers to provide recent information technology advances in finance for inclusive development. Retained financial innovations are structured along three themes. They are: (i) the rural-urban divide, (ii) women empowerment and (iii) human capital in terms of skills and training. The financial instruments are articulated with case studies, innovations and investment strategies with particular emphasis, inter alia on: informal finance, microfinance, mobile banking, crowdfunding, microinsurance, Islamic finance, remittances, Payment for Environmental Services (PES) and the Diaspora Investment in Agriculture (DIA) initiative.

Why do financial inclusion policies fail in mobilizing savings from the poor ? Lessons from rural South India *

Abstract: Combining multivariate and qualitative analyses, this micro-level study suggests an explanation for the persistence of informal savings in rural South India despite publicly run large-scale programs to promote bank savings. Notably gold, but also ROSCAs and private lending, remain dominant forms of saving. We argue that cultural norms and social institutions such as social class and caste shape the nature, the propensity but also the opportunities to save. Gold serves multiple purposes, which are financial, economical, socio-cultural, and political. Furthermore, we find that Dalits’ (the lowest caste) preference for gold illustrates a relative emancipation of Dalits combined with the maintenance of prohibition related to caste which prevents them to invest in other assets such as land.

Women's empowerment in the context of microfinance services

Abstract: Women’s empowerment is an important goal in achieving sustainable development worldwide. Offering women access to microfinance services (e.g., microloans, training) is one way to increase women’s empowerment. However, previous research reports mixed findings regarding its effectiveness. In this dissertation, we combine qualitative and quantitative research to systematically investigate the meaning and development of women’s empowerment in the context of microfinance services. First, based on a theoretical review, we propose to differentiate between three distinct but related dimensions of women’s empowerment to understand it: personal (individuals’ personal beliefs and actions), relational (beliefs and actions with respect to relevant others, e.g., spouse), and societal (position in society) empowerment. Thus, women’s empowerment is a process involving personal, relational, and societal awareness, beliefs, and behavior to strengthen women’s position. Second, a correlational study among female microfinance borrowers in Vietnam shows the importance of considering women’s relational embeddedness when investigating women’s empowerment. Third, two studies show that training tailored to the needs of female entrepreneurs can empower them. Specifically, a large longitudinal field experiment in Vietnam showsthat access to gender- and business-training increased women’s personal and relational empowerment over time. Furthermore, field experiments in Sri Lanka show that one goal-setting session improved women’s goal-setting skills and tentative signs of women’s empowerment in an interactive task with their husbands. In sum, this dissertation contributes to the theoretical and practical discussion on how to strengthen women’s empowerment by stressing the importance of offering needs-based training and taking the relational context in which women are embedded into account.

Indebted to Development: Microcredit as (De)marginalisation in Rural China

Abstract: Microcredit schemes have been increasingly incorporated into development policies that aim to de-marginalise rural China. Based on in-depth ethnographic fieldwork, this paper examines the various roles that microcredit programmes play in development outcomes at the local level. It demonstrates that microcredit has the ability to facilitate the de-marginalisation of certain individuals/groups, while simultaneously (re)producing inequalities, thus exacerbating the marginalisation of others. This finding demonstrates that microcredit does not induce uniform, predictable and linear development through the integration of marginal places and people into the formal financial system and wider economy. Instead, microcredit programmes reflect and reinforce the interlocking sets of unequal relationships that are the root cause of marginality and underdevelopment in China. Through this detailed analysis of the contradictory outcomes of Chinese microcredit programmes, this paper provides the basis for a wider relation...

The Islamic Banking, Asset Quality: “Does Financing Segmentation Matters” (Indonesia Evidence)

Abstract: Bank stability becomes one of the crucial pillars in maintaining economic growth. Therefore, the segmentation strategy is needed because it aims to improve the financial stability of the bank (decrease Non-Performing Loan-NPL / Non-Performing Financing-NPF). This study aims to determine the effect of segmentation on the quality of Islamic banks proxied with NPF. The method used is a quantitative method with multiple regression test and statistical tool Stata version 13. From the results of statistical data, it is known that the retail segment has a more significant influence than the wholesale segment, which is 92.61% and 56.05%. Therefore, sharia banks should have their business priorities in the retail segment, especially business in the microfinance segment by maintaining the quality of financing through selective financing channeling.