Showing papers on "Microfinance published in 2019"

The Commercialization of the Microfinance Industry: Is There a ‘Personal Mission Drift’ Among Credit Officers?

Abstract: Recent research suggests that many microfinance institutions increasingly focus on financial performance at the expense of the social component of their dual objectives. Existing studies typically assume that capital providers and managers mainly drive this so-called mission drift. In this study, we investigate whether ‘personal mission drift’ at the credit officer level can further explain the reduced emphasis on poorer clients among microfinance institutions. We present both qualitative and quantitative evidence that more experienced credit officers tend to serve fewer vulnerable clients. Specifically, we show that all else being equal, credit officer experience is negatively correlated with the provision of small loans, loans to young clients, and loans to clients with disabilities. Our qualitative analysis suggests that perceived client risk and preferences for increased time efficiency mainly drive more experienced credit officers’ relative neglect of more vulnerable clients. This drift appears to be reinforced by the industry’s incentive schemes. Therefore, credit officer incentives and training should be designed to prevent this mission drift, which is observed at the microfinance institution level but is actually initiated at the credit officer level.

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 role of financial inclusion in driving women’s economic empowerment

Abstract: This article highlights why the Bill & Melinda Gates Foundation has focused on financial inclusion to advance women’s economic empowerment and drive progress on gender equality. It highlights key l...

Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs

Abstract: Can microcredit help unlock a poverty trap for some people by putting their businesses on a different trajectory? Could the small microcredit treatment effects often found for the average household mask important heterogeneity? In Hyderabad, India, we find that “gung ho entrepreneurs” (GEs), households who were already running a business before microfinance entered, show persistent benefits that increase over time. Six years later, the treated GEs own businesses that have 35% more assets and generate double the revenues as those in control neighborhoods. We find almost no effects on non-GE households. A model of technology choice in which talented entrepreneurs can access either a diminishing-returns technology, or a more productive technology with a fixed cost, generates dynamics matching the data. These results show that heterogeneity in entrepreneurial ability is important and persistent. For talented but low-wealth entrepreneurs, short-term access to credit can indeed facilitate escape from a poverty trap.

Microaccountability and biopolitics : Microfinance in a Sri Lankan village

Abstract: Based on a micro-level study of microfinance, this paper explores how basic accounting technologies and interpersonal accountability are used to make lending to poor village women profitable and low risk. We argue that “microaccountability,” our term for the structuring and formalization of convivial relationships into a capillary system of accountability, must be recognized as a central tool of social governance under neoliberalism. Our field research in Sri Lanka allows us to analyse how microaccountability is employed by for-profit banks to create from poor villagers a legion of bankable individual entrepreneurs, trained to invigilate each other's savings and credit behaviours. Using the theoretical lens of biopolitics, we show how microaccountability enables the extension of the finance industry into untapped sectors of the global population.

Gender, Microcredit and Poverty Alleviation in a Developing Country: The Case of Women Entrepreneurs in Pakistan

Abstract: The paper explores the impact of financial exclusion on financial and human poverty amongst women in Pakistan. The findings suggest that persistent financial exclusion, gender discrimination, and conservative religious values adversely impact women’s empowerment. There is an inverse correlation between the size of microcredit and women’s financial poverty, which is not the case for human poverty. Larger families experienced higher rates of poverty reduction than smaller families. The study offers evidence, and supports theories on the impact of microcredit upon poverty alleviation. These findings inform policy makers, women entrepreneurs, and microfinance institutions.

Organizational Culture and Performance: Evidence From Microfinance Institutions in Kenya

Abstract: The study aimed at determining the influence of organizational culture on the performance of microfinance institutions in Kenya. A descriptive cross-sectional survey design was adopted. Secondary d...

All Myth and Ceremony? Examining the Causes and Logic of the Mission Shift in Microfinance from Microenterprise Credit to Financial Inclusion

Abstract: This contribution assesses the shift in the mission of microfinance from providing small loans for entrepreneurship to the broader agenda of financial inclusion. Three leading organisations' publications inform a discourse analysis, which allows the strategic shift to be analysed using two theoretical frames from organisational sociology: instrumental rationalism and sociological institutionalism. The proclaimed shift in strategy is found to consist less of rational innovation towards the aim of poverty alleviation than of “myth and ceremony” for the sake of organisational self-preservation.

History of microfinance in Bangladesh: A life cycle theory approach

Abstract: This study aims to conceptualise and document the historical evolution of microfinance in Bangladesh using the life cycle theory (LCT). Based on the LCT nomenclature, the microfinance sector in Ban...

Geographic diversification and credit risk in microfinance

Abstract: This paper examines the relation between geographic diversification and credit risk in microfinance. The empirical findings from the banking industry are mixed and inconclusive. This study extends the discussion into a new international setting: the global microfinance industry with lenders having both social and financial objectives. Using a large global sample of microfinance institutions (MFIs), we find that geographic diversification comes with more credit risks. However, this finding is more pronounced among non-shareholder MFIs like NGOs and cooperatives, compared to shareholder-owned MFIs. Moreover, the results show that MFIs can mitigate the effect of geographic diversification on risk with group lending methodology.

Financial sustainability and outreach performance of saving and credit cooperatives: The case of Eastern Ethiopia

Abstract: Financial cooperatives and microfinance institutions are typical models that disprove the traditional assumption that the poor are neither creditworthy nor able to save. The principal objective of Savings and Credit Cooperative Societies are accumulating savings and creating a source of credit to members at a fair and reasonable interest rate. SACCOs need to be financially sustainable and accessible in order to provide sustainable financial products and effectively serving the poor. The main objective of this study is to examine the sustainability and outreach performance of SACCOs in Eastern Ethiopia. The study employed both descriptive and causal research design. 46 SACCOs that have been operating at least for three years with audited financial reports were selected for the study. The study used secondary data sources mainly audited financial statement of the society for the year 2016. The study found that SACCOs in Eastern Ethiopia are financially sustainable and their outreach performance is at moderate level. Return on asset, operational efficiency, debt equity ratio, donation, and deposit mobilization are statistically significant predictor variables in determining the financial self-sufficiency of SACCOs. Similarly, financial self-sufficiency, size, debt equity ratio and donation are statistically significant predictor variables in determining the outreach performance of SACCOs.

Science Mapping of the Global Knowledge Base on Microfinance: Influential Authors and Documents, 1989–2019

Abstract: The use of microfinance in poverty alleviation and, by extension, as an instrument for sustainable social and economic development, represents a novel idea in sustainable finance. This study employed science mapping to examine 4049 Scopus-indexed documents explicitly concerned with microfinance. The goals of the review were to document the distribution of microfinance literature by type, volume, time, and geography, and to identify influential authors, articles, and a potential intellectual structure of this knowledge base. The first microfinance research was conducted in 1989, but the field attracted increased attention only after 2006, when the Nobel Peace Prize was awarded to microfinance pioneer Muhammad Yunus. This study does not find any single dominant school of thought in the field of microfinance, but rather identified three thematic research clusters: (1) a concentration on institutional aspects of microfinance, (2) scholars who used sophisticated research methods to evaluate the impact of microfinance, and (3) groundbreaking microfinance literature related to social justice more generally. As the first-ever, comprehensive bibliometric review of research on microfinance, this study provides benchmarks against which to assess the future evolution of this literature, a reference for scholars entering this domain, and targets for future development of this field of sustainability scholarship.

Factors Effecting The Elasticity Of Micro Credit Demand In Southern Punjab, Pakistan

Abstract: Purpose of the study: Microfinance institutions (MFIs) are delivering various services of microcredit, savings as well as insurance. The key objective of microcredit is to decrease the poverty level and for empowering the women as well as other poor people under various developing countries. There is the various factor which effects on the demand of microcredit. Therefore, the objective of the current study is to explore the factors which affect the demand for microcredit. Methodology: In this conceptual study, the qualitative research technique was used. The data were collected from previous research studies and companies’ websites. Main Findings: It is concluded that numerous factors may influence the demand for microcredit by the various borrowers. These comprise the interest rate, the relationship between lenders as well as borrowers, different government policies, gender differences, prospective beneficiaries, the creditworthiness of the borrower, transaction cost, limited access to credit, economic condition and the availability of information. Applications: This helps analyze the barriers which the borrower and lender must face in operating the microcredit. In this way, microfinance institutions can take help from this study by considering these factors during the distribution of credit. Novelty/Originality: The findings of this research study fulfilled the theoretical gaps in the literature by identifying the different fact which may help to revise the poverty level. Future research studies may focus on these factors, which may help to increase the economy and reduce poverty in southern Punjab, Pakistan.

Drivers of solvency risk – Are microfinance institutions different?

Abstract: Based on a dataset covering 2938 banks and 1078 microfinance institutions (MFIs) operating in 106 countries this paper compares drivers of MFI and bank solvency risk Measuring solvency risk by the non-performing loans (NPL) ratio we find that several factors driving the bank NPL ratio play a more subdued role for MFIs By contrast, MFI Z-scores, notably those of MFI banks, credit unions and other MFIs, are driven by largely the same factors as bank Z-scores The difference in results can be linked to the special characteristics of credit technologies pursued by MFIs Given that the Z-score is the broader risk measure we conclude from our results that larger and deposit taking MFIs should be subject to the same regulatory and supervisory regimes as banks

South Africa's post-apartheid microcredit experiment: moving from state-enforced to market-enforced exploitation

Abstract: The international donor community arrived in post-apartheid South Africa in the early 1990s to restructure the economy along neoliberal lines. One of the most important of the interventions it promoted was microcredit, which was widely seen as one of the principal self-help solutions to the exceptionally high levels of unemployment and poverty that prevailed in the Black South African community. In spite of an early ‘boom-to-bust’ episode in the early 2000s and worrying evidence it was actually further impoverishing far more Black South African's than it was actually helping escape from poverty and unemployment, the microcredit model did not lose its international support: if anything, this support was expanded as the international development community desperately sought to ensure the survival of the microcredit model and therefore also the centrality of self-help and individual entrepreneurship as the only way out of poverty for the poor. This article shows how and why the microcredit model was supporte...

Outreach and performance of microfinance institutions: the importance of portfolio yield

Abstract: In this paper, we examine the interaction between social outreach and financial return in microfinance. Running multivariate regression models and using 1,805 observations of microfinance instituti...

Understanding Social Performance: A ‘Practice Drift’ at the Frontline of Microfinance Institutions in Bangladesh

Abstract: This article examines the role of microfinance staff and procedures in enabling microfinance's social mission. It does so primarily through studying institutional ruling relations and practices in rural Bangladesh. Attempting to move away from the linear and deterministic approaches of impact studies, it ethnographically scrutinizes the everyday practices of implementers. Findings point to the emergence of systemic practices that jeopardize microfinance institutions' potential to perform their social mission. These include low client-selection standards, hard selling of loans and forceful loan renewal, little follow-up on loan use, and abusive and violent client-retention and repayment-collection strategies. This is conceptualized as a 'practice drift' as distinct from the commonly reported 'mission drift'. Rather than stemming from planned, top-down changes in institutional mission and strategy, practice drift emerges from a displacement of decision-making processes to the branches. The article argues that observed changes in microfinance practice are enabled by decentralized structures and management systems that leave the choice of tactics used to achieve targets to the discretion of field staff.

Strategic Issues in Microfinance

Abstract: Part 1 The microfinance market: do financial institutions have a role in assisting the poor? Claudio Gonzalez-Vega critical issues in microbusiness finance and the role of donors, Reinhard H Schmidt and CP Zeitinger. Part 2 Microfinance program design strategies: microfinance - the paradigm shift from credit delivery to sustainable financial intermediation, Marguerite S Robinson Altruistic or production finance? a donor's dilemma, Dale W Adams combining social and financial intermediation to reach the poor - the necessity and dangers, Lynn Bennett balancing perspectives on informal finance, Otto Hospes developing alternatives to informal finance and finding market riches, Carlos E Cuevas basing access on performance to create sustainable financial services for the poor in Nepal, Lynn Bennett, Mike Golberg and JD Von Pischke. Part 3 Sustainability and accountability in microfinance: credit scoring to predict loan repayment performance - an application to rural customers in Burkina Faso, Laura Vigand keys to financial sustainability, Robert Peck Christen other people's money - regulatory issues facing microenterprise finance, Robert C Vogel measuring the performance of small enterprise lenders, JD Von Pischke a road map for financial stabilization of credit unions - the Guatemalan experience, David C Richardson, Barry L Lennon and Brian A Branch.

Fostering micro-entrepreneurs’ structural and relational social capital through microfinance

Abstract: This paper uses a multi-dimensional perspective on social capital to investigate how a microfinance institution can enhance the social capital of poor entrepreneurs. Findings show that by creating an environment that encourages frequent meetings and interactions between borrowers, group-based microfinance facilitates the development of relational trust and expansion of the network size of micro-entrepreneurs. An increase in levels of structural and relational social capital, in turn, leads to numerous advantages in terms of the flow of a diversity of resources. Ensuring access to financial capital, creating an enabling environment that fosters structural and relational social capital, and providing training would constitute a much better approach to helping poor entrepreneurs.

Potential of Sharī’ah compliant microfinance in alleviating poverty in Nigeria: A lesson from Bangladesh

Abstract: This paper aims to explore the option of Sharī’ah-compliant microfinance as a viable alternative to many previous approaches adopted by the Nigerian State in tackling the menace of poverty in the land. In spite of many poverty alleviation policies and interventions of the past three decades, millions of Nigerians still live in abject poverty, while thousands of university graduates roam the streets looking for jobs. Many unemployed Nigerians with good business ideas are usually discouraged by the alarmingly high interest rate charged on start-up capitals by local banks.,To achieve its objective, this paper used both analytical and qualitative methods after thoroughly examining many relevant literature and empirical works. The study explores four Sharī’ah tools for the implementation of the proposed scheme, to wit: musharakah, mudharabah, zakat and waqf.,The study finds that the suggested Sharī’ah tools are viable and sustainable in lunching microfinance projects in the Nigerian context. The paper further argues that exploring Islamic non-interest microfinance options will guarantee the financial inclusion of a large percentage of Nigerians, pursuant to the Constitutional provision on economic rights of the entire citizenry (s.16 of the 1999 Constitution of the Federal Republic of Nigeria, as amended).,The paper identifies a yet-to-be explored viable option, with great potential not only in enhancing government policies for poverty alleviation but also in assuring a large percentage of the citizens of financial inclusion.