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on Microfinance |
| By: | Dean Karlan (Economics Department, Yale University); Ryan Knight (School of Management, Yale University); Christopher Udry (Economics Department, Yale University) |
| Abstract: | Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one’s own type, but willingness to experiment to learn one’s type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory. |
| Keywords: | entrepreneurship; credit constraints; business training; consulting; managerial capital |
| JEL: | D21 D24 D83 D92 L20 M13 O12 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1014&r=mfd |
| By: | Khandker, Shahidur R. |
| Abstract: | Competing theories increasingly support the positive role of social capital in small loan default costs of group lending; at the same time, potential group collusion may increase loan delinquencies. Findings from the available literature are mixed on the role of the various attributes of group lending. But past studies suffer from estimation bias due to the unobserved sorting behavior of group members and their other attributes. This paper attempts to resolve that estimation bias by utilizing longitudinal data from 297 Grameen Bank groups since their inceptions. A dynamic lagged dependent model with correction for time-varying heterogeneity of group and individual behavior is applied to estimate the effect of group liability in the Grameen Bank. The results suggest that group liability matters in both loan disbursement and repayment, with women less of a credit risk than men and women's groups more homogeneous than men's. Finally, the benefits of social capital outweigh the costs of group collusion, especially for women's groups, thereby reducing overall default rates. The risk-pooling behavior of diverse men's groups increases men's repayment behavior. Overall, group lending as practiced by Grameen Bank appears to increase repayment rates. |
| Keywords: | Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Economic Theory&Research,Microfinance |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6204&r=mfd |
| By: | McKenzie, David; Woodruff, Christopher |
| Abstract: | Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. This paper undertakes a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. It finds that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. The paper concludes by summarizing some directions and key questions for future studies. |
| Keywords: | Financial Literacy,Primary Education,Access&Equity in Basic Education,Education For All,Competitiveness and Competition Policy |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6202&r=mfd |
| By: | Jean-Marie De Corte; Marc Labie; Ludovic Urgeghe; Jean-Claude Vansnick |
| Abstract: | In a context where MIVs face several bottlenecks regarding their future role in the microfinance industry, this paper suggests a brand new way of reviewing their commitment to double bottom line returns. We suggest using the MACBETH (Measuring Attractiveness by a Categorical Based Evaluation TecHnique) approach as an investment screening method which, combined to existing social performance tools such as the Social Performance Indicators, can ensure that investment decisions are taken in accordance with socially responsible investors’ values. This approach could contribute to the emergence of the transparency MIVs need in ensuring the whole sector that their commitment to double bottom line returns is real. |
| Keywords: | Microfinance; Social performance; Microfinance Investment Vehicles; Investment screening; Multicriteria assessment |
| JEL: | G11 G23 L20 O16 O17 |
| Date: | 2012–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/128723&r=mfd |
| By: | Founanou , Mathurin; Ratsimalahelo , Zaka |
| Abstract: | We analyze the optimal regulation of a MFI that has private information on the intrinsic quality of its loan portfolio (adverse selection) and where the MFI’s choice of effort to improve this quality cannot be observed by the regulator (moral hazard). In designing optimal contracts the regulator faces a tradeoff between inducing proper incentives for efficient MFI and costs of regulation in terms of leaving an informational rent for a high quality MFI. We identify conditions for the optimal incentive contract and show that, not surprisingly, these contracts depend on the accuracy of the supervisor’s signal, the likelihood of facing a high quality MFI, and the cost of supervision. However, since improving the accuracy of supervision is costly, even in the optimal monitoring scheme there generally exists a positive probability of MFI failure. The content of information disclosure is characterized by the optimal monitoring scheme. |
| Keywords: | Microfinance institution; adverse selection; moral hazard; regulation; supervision; optimal incentive contracts |
| JEL: | D82 G28 G21 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41428&r=mfd |
| By: | Kolstad, Ivar; Wiig, Arne |
| Abstract: | A number of studies document an in-group bias in social dilemma situations. While group structure and dynamics are important in shaping in-group favouritism, less attention has been paid to individual characteristics affecting favouritism. Using data from |
| Keywords: | in-group favouritism, parochialism, field experiment, social preferences, microcredit |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-45&r=mfd |
| By: | Enowbi Batuo, Michael; Mlambo, Kupukile |
| Abstract: | While financial liberalisation is considered to be good for economic growth in that it promotes the development of the financial sector, banking crises on the other hand tend to be inimical for economic growth. Moreover, banking crises tend to be preceded by financial liberalisation, as noted in a number of studies. This is because financial liberalisation tends to induce greater risk-taking behaviour by agents, thus leading to banking crises. In this paper we study the effect of financial liberalisation and banking crises on the economic performance of African countries during the period covering 1985 to 2010. Using a treatment effect, two step methods and a panel probit method, our results show that banking crises have a negative impact on economic growth meanwhile financial liberalisation tends to reduce the likelihood of banking crises in African countries. |
| Keywords: | O16; O47;G23; O55 |
| JEL: | O16 N17 O4 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41448&r=mfd |