Microfinance

About: Microfinance is a research topic. Over the lifetime, 11375 publications have been published within this topic receiving 169239 citations.

Financial performance and outreach: a global analysis of leading microbanks*

Abstract: Microfinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries, but high repayment rates have not translated easily into profits for most microbanks. Profitability, though, is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors examine why this promise remains unmet for most institutions. Using a data set with unusually high quality financial information on 124 institutions in 49 countries, they explore the patterns of profitability, loan repayment, and cost reduction. The authors find that institutional design and orientation matter substantially. Lenders that do not use group-based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially. For these individual-based lenders, one key to achieving profitability is investing more heavily in staff costs-a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost.

The microfinance schism

Abstract: Leading advocates for microfinance have put forward an enticing “win-win” proposition: microfinance institutions that follow the principles of good banking will also be those that alleviate the most poverty. This vision forms the core of widely-circulated “best practices,” but as a general proposition the vision is fully supported neither by logic nor by the available empirical evidence. Recognizing the limits to the win-win proposition is an important step toward reaching a more constructive dialogue between microfinance advocates that privilege financial development and those that privilege social impacts.

Social Entrepreneurship: New Models of Sustainable Social Change

Abstract: "Social Entrepreneurship" is a term that has come to be applied to the activities of grass-roots activists, NGOs, policy makers, international institutions, and corporations, amongst others, which address a range of social issues in innovative and creative ways. Themed around the emerging agendas for developing new, sustainable models of social sector excellence and systemic impact, Social Entrepreneurship offers, for the first time, a wide-ranging, internationally-focused selection of cutting-edge work from leading academics, policy makers, and practitioners. Together they seek to clarify some of the ambiguity around this term, describe a range of social entrepreneurship projects, and establish a clear set of frameworks with which to understand it. Included in the volume are contributions from Muhammad Yunus, winner of the 2006 Nobel Peace Prize and the father of microfinance, Geoff Mulgan, former head of the British prime minister's policy unit, and Bill Drayton, founder of the Ashoka network of social entrepreneurs.

The miracle of microfinance? Evidence from a randomized evaluation

Abstract: This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.