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on Microfinance |
| By: | Karlan, Dean S.; Zinman, Jonathan |
| Abstract: | Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about “unproductive” lending. These concerns are fueled by academic work highlighting behavioural biases that may induce consumers to overborrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by randomly approving some marginal applications it normally would have rejected. We estimate the resulting impacts using new survey data on borrower behaviour and well-being, and administrative data on loan repayment. We find that the marginal loans produced measurable benefits in the form of increased employment, reduced hunger, and reduced poverty. The marginal loans also appear to have been profitable for the lender. The results must be interpreted with caution but suggest that consumer credit expansions can be welfare-improving. |
| Keywords: | loans |
| JEL: | E51 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6180&r=mfd |
| By: | Karlan, Dean S.; Zinman, Jonathan |
| Abstract: | Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of adverse selection and moral hazard in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers issued by a major South African lender along three dimensions: 1) an initial "offer interest rate" featured on a direct mail solicitation; 2) a "contract interest rate" that was revealed only after a borrower agreed to the initial offer rate; and 3) a dynamic repayment incentive that extended preferential pricing on future loans to borrowers who remained in good standing. These three randomizations, combined with complete knowledge of the Lender's information set, permit identification of specific types of private information problems. Our setup distinguishes adverse selection from moral hazard effects on repayment, and thereby generates unique evidence on the existence and magnitudes of specific credit market frictions. We find evidence of moral hazard and weaker evidence for adverse selection. A rough calibration suggests that perhaps 7% to 16% of default is due to asymmetric information problems. Asymmetric information may help explain the prevalence of credit constraints even in a market that specializes in financing high-risk borrowers at very high rates. |
| Keywords: | adverse selection; credit markets; development finance; field experiment; Information asymmetries; microfinance; moral hazard |
| JEL: | C9 D8 G2 G3 O1 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6182&r=mfd |
| By: | Chiara SANSEVERINO |
| Abstract: | The paper gives a theoretical framework of microfinance and it analyzes Non Governmental Organizations (NGOs) as Microfinance Institutions (MFIs). Multipurpose NGOs in LDCs were the leading part in the so called ‘microfinance revolution’. Nevertheless a ri-definition of their role is needed, given some critical impacts of NGO programs in microfinance and given the rise of new and more specialized providers. The hypotesis is that the new role can be pursuit through the promotion of strategic partnerships in which the multipurpose NGO, as promoter, manage the component of non-financial services and other functions which differ from financial service delivering itself, such as groups capacity building and designing loan schemes guarantee. This kind of ‘linkage model’ can overwork NGO ability to stay at the grassroots and succeeds in both reducing asymmetric information phenomena and administrative costs for the Financial Institutions. By doing so it channels new clients’ demand to formal financial system supply. This intermediation action will be highlighted through the analysis of four interesting cases in very different LDCs: Zimbabwe, Bosnia, Bolivia and India. The paper aims at showing some experiences which can contribute to deepen knowledge and improve microfinance good practises among operators |
| Keywords: | MFIs, NGOs, financial markets, formal and informal sectors, international linkages to development |
| JEL: | G21 L31 N2 O17 O19 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2007-09&r=mfd |
| By: | Mikkel Barslund (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Copenhagen) |
| Abstract: | This paper uses a survey of 932 rural households to uncover how the rural credit market operates in four provinces of Vietnam. Households obtain credit through formal and informal lenders. Formal loans are almost entirely for production and asset accumulation, while informal loans are used for consumption smoothening. Interest rates fell from 1997 to 2002, reflecting increased market integration. Moreover, the determinants of formal and informal credit demand are distinct. While credit rationing depends on education and credit history, in particular, regional differences in the demand for credit are striking. A ‘one size fits all’ approach to credit policy in Vietnam would be inappropriate. |
| Keywords: | rural credit; household survey; Vietnam |
| JEL: | O12 O16 O17 O18 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0707&r=mfd |