Non-grant microfinance,incentives and efficiency

I show that charging interest on funds provided by donors or investors to microfinance institutions (MFIs) can increase efficiency, the total number of loans and borrower welfare, compared to grant or concessionary funding. In a setting in which MFIs supply costly non-contractible effort, putting a price or raising the price of loanable funds strengthens the MFIs’ incentives to put effort in credit administration or monitoring, to extend more loans, and/or reduce overhead costs. This theoretical result is robust to several variations of the benchmark model allowing for an endogenous lending rate, motivated MFIs and endogenous overhead costs.     

Microfinance institutions’ transparency in Sub-Saharan Africa

This study analyses the impact of the ownership structure and macro-level factors on Microfinance institutions’ (MFIs) transparency in Sub-Saharan Africa (SSA). Using cross-sectional data from 223 MFIs in 11 countries, we find that MFI transparency in SSA is low and highly variable. Our results indicate that larger MFIs and non-governmental organizations (NGOs) are associated with greater transparency. Greater transparency of NGOs is consistent with the need to sustain and attract donor funding. Country-level resources, such as the level of financial sector development, also impact MFI transparency.     

If the Banks are Doing So Well,Why Can't I Get a Loan? Regulatory Constraints to Financial Inclusion in Indonesia

Indonesia's financial sector has two paradoxes: (i) Indonesia has been a global leader in microfinance for the past 25 years, but access to microfinance services is declining; and (ii) Indonesia's commercial banks are liquid, solvent, and profitable, and the Indonesian economy has been doing well over the past decade, but small and medium enterprises are facing a credit crunch. Although Indonesia is underbanked, most commercial banks have been unresponsive to unmet effective demand. The behavior of banks has been in their own short‐term best interests, primarily because of the unintended consequences of Indonesia's financial sector reregulation after the East Asian crisis and contradictory monetary policies, which have produced a prudentially sound but inefficient, narrow, and homogenized banking oligopoly. Indonesia should not respond to financial exclusion by artificially pumping out and administratively allocating more credit. Instead, it should promulgate smart regulation so that banks maintain their sound risk management without pursuing noncompetitive and noninclusive business practices.     

SUSTAINABILITY AND OUTREACH: A COMPARATIVE STUDY OF MFIs IN SOUTH ASIA AND LATIN AMERICA AND THE CARIBBEAN

Previous studies indicate that microfinance institutions (MFIs) in Latin America and the Caribbean (LAC) have different operational strategies to MFIs in South Asia (SA). Given the recent emphasis placed on the feasibility of MFIs to achieve the dual goals of outreach and sustainability concurrently, we examine and compare the relationship between sustainability and outreach of MFIs in LAC with MFIs in SA. Our results indicate that trade‐offs exist between outreach and sustainability in both regions. However, the severity of trade‐off is dependent on which goal MFIs decide to focus on in each region.     

Depth of outreach and financial sustainability of microfinance institutions

The primary justification for subsidizing Microfinance Institutions (MFIs) is their enhancement of social welfare by extending credit to the poor households. Therefore, recent emphasis on their financial self-sufficiency has created concern, that this may adversely affect the mission of social outreach. Utilizing data from 702 MFIs operating in 83 countries, this study shows empirical evidence of a positive complementary relationship between financial sustainability and depth of outreach.     

The effect of corruption on microfinance loan portfolio: A semiparametric analysis

In this paper, we examine the extent to which corruption affects the loan portfolio of microfinance institutions (MFIs). We employ robust econometric estimation on a sample of 507 MFIs across 63 countries from 2005 to 2018. Our results show that corruption is negatively associated with the loan portfolio. However, in semiparametric analysis, we find that lower-level corruption is beneficial to increase the loan portfolio while higher-level corruption is detrimental. The results imply that it is not just corruption that matters as far as its effect on MFIs' loan portfolio is concerned; what matters is the degree of corruption. In further analyses, we find that corruption reduces both the number of active borrowers and average loan per borrower indicating that corruption reduces both coverage and amount of credit extension. The results suggest that the effect of corruption on the loan portfolio is gender-sensitive. Corruption facilitates an increase in loans to female borrowers. Our results are robust to alternative variable measurements and different identification strategies, including two-stage least square.     

LES DÉTERMINANTS DE LA PERFORMANCE DE REMBOURSEMENT DES MICROCRÉDITS EN TUNISIE

Our work is part of the quest for sustainability of MFIs. To ensure sustainability, an MFI must be effective. It must, among others, face many risks and in particular the default risk. A question arises: what are the determinants of portfolio quality of MFIs? In other words, what are the determinants that influence delays in payment of MFIs? The interest of this research is twofold. The first is practical: knowing the importance of performance measures of microcredit as a precondition for the efficiency and financial performance of MFIs, this study identified determinants of the reimbursement rate in an MFI of Tunisia. It may even give an evidence for banks to intervene on the market of micro credit. The second is methodological: to find the determinants of reimbursement behaviour in MFIs, a binary logistic regression is used, while differing in explanatory variables between key variables and moderators’ ones, which was not met previously in the literature. The results showed that among the variables related to the characteristics of the loan, the loan amount and the borrower's experience with the MFI affect the rate of reimbursement. The credit increases the likelihood of default. Unlike, when borrower's experience with the MFI increases, the risk of default decreases. A relationship between the industry and the repayment rate has not been verified. For variables related to the characteristics of the borrower, age, educational level and marital status of the borrower appear to affect the relationship between the risk of default and the amount of credit. The effect of the credit amount on the default risk decreases as age and level of education increases. In addition, this effect is more important for married compared to the unmarried. For gender, we found that the effect of maturity on the risk of default is not the same for men or women borrowers. It seems that when the maturity increases, men provide reimbursement rates lower than women.     

Does Institutional Linkage of Bank‐MFI Foster Inclusive Financial Development Even in the Presence of MFI Frauds?

Growing reports indicate the presence of frauds in microfinance institutions (MFIs), as it can occur in any organization in countries where there are weak institutions, weak rule of law, and fraudulent behavior of MFI officers for personal gain. While there are increasing calls to launch financial governance of these NGO MFIs, there are concerns as to whether frauds of this nature can damage MFIs’ contributions to the credit market, particularly in the bank‐linkage program where the NGO MFIs act as third party intermediary. The purpose of this study was to analyze the collusion decisions faced by MFIs and their impact on the bank‐linkage program, which has been offered as a solution to help overcome adverse selection and moral hazard problems in the credit market by harnessing local information via MFIs. Our results show that even when there is a chance of collusion between MFI and the borrower, the linkage between MFI and bank can still increase the probability that the borrower puts in full effort, and therefore decreases the probabilities of both credit rationing and strategic default. Such linkage in financing viable projects can make micro‐financing more effective in achieving inclusive financial development and thereby poverty reduction in rural areas.     

The Role of a Firm’s Net Cash Payouts in Leland’s (1994) Model

We study the effects of introducing payouts on corporate debt and optimal capital structure in a structural credit risk model à la Leland (1994) . We find that increasing the payout parameter not only affects the endogenous bankruptcy level, which is decreased, but modifies the magnitude of a change on the endogenous failure level as a consequence of an increase in risk‐free rate, corporate tax rate, riskiness of the firm and coupon payments. This simple analytical framework is able to capture realistic insights about optimal leverage, spreads and default probabilities more in line with historical norms (if compared to Leland’s results) and closer to predictions obtained through more sophisticated models.     

Does access to credit improve productivity? Evidence from Bulgaria1

Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth at the microeconomic level is scant. Using data from a cross‐section of Bulgarian firms, we estimate the impact of access to credit, as proxied by indicators of whether firms have access to a credit line or overdraft facility, on productivity. To overcome potential omitted variable bias of Ordinary Least Squares (OLS) estimates, we use information on firms’ past growth to instrument for access to credit. We find credit to be positively and strongly associated with TFP. These results are robust to a wide range of robustness checks.     

The impact of mobile financial services’ usage on microfinance delinquency

This paper studies the impact of Mobile Financial Systems’ usage on microcredit delinquency ratios in Tunisia by using either a two-part model or matching econometric procedures. Our large dataset contains all of the administrative registers that belong to the six branches of Enda, the incumbent Institution leader in Tunisia. We find a significant reduction of 4.92 days of late repayment for an average user of MFS in an environment where 15% of loans have been paid late at least once. We foresee a tremendous opportunity to improve the MFIs’ repayment ratios and, consequently, provide microcredit customers with more financing for income generating activities.     

MEASURING THE EFFICIENCY OF SUB‐SAHARAN AFRICA'S MICROFINANCE INSTITUTIONS AND ITS DRIVERS

This paper uses a large panel data set covering 70 MFIs in 25 Sub‐Saharan African countries to analyze the efficiency of MFIs. This is important, given that MFIs have to operate efficiently to fulfil its dual mission of serving the poor and being sustainable. The results reveal that MFIs are inefficient in meeting the goals of either providing microfinance related services to their clients or intermediating funds between borrowers and depositors. The MFIs lack ability to reach efficient sizes of their performing loan portfolio at the same time they reach an efficient number of clients served.     

Microfinance spillovers: A model of competition in informal credit markets with an application to Indian villages

Despite widespread interest in the development of microfinance, spillover effects on the non-using population and redistributive issues remain largely unexplored. I study a competition game between microfinance institutions (MFIs) offering joint-liability loans and moneylenders offering individual loans in presence of adverse selection. I show that one unintended consequence of the entry of a microfinance sector in local credit markets can be to trigger an increase in the equilibrium informal interest rate, because MFIs tend to attract a disproportionately-safe share of the borrower pool away from incumbent moneylenders. The existence of such composition externality depends crucially on the size of the microfinance sector and the risk composition of the borrower pool. The model predicts a non-linearly increasing relationship between informal interest rates and MFIs' capacity in relatively safe credit markets, and no relationship in risky villages. I show evidence supporting these predictions, using a first-hand panel database that records all credit transactions over 8 years for a sample of about 1000 households living in Indian villages with extensive space and time variation in the size of their microfinance sector.     

Effect of board gender diversity on the financial performance of microfinance institutions: Does judicial efficiency matter?

The impact of board gender diversity on the financial performance of firms is not known. This is because empirical investigations have yielded inconclusive outcomes. This study engages data from 408 microfinance institutions (MFIs) covering the period 2010–2018 from the six microfinance regions to investigate this impact using the Least Squares Dummy Variable (LSDV) and the System Generalized Method of Moments (SYS-GMM) estimation techniques. The study also explores whether judicial efficiency exerts any significant effect on the board gender diversity–financial performance nexus. The study observes that board gender diversity exhibits a strong negative effect on the financial performance of MFIs. The study also observes that the effect of board gender diversity on the financial performance of MFIs escalates in the presence of judicial inefficiency. The study, therefore, unveils the judicial system as a channel through which gender diversity drives the financial performance of MFIs negatively.     

小额金融机构监管须谨防与服务低收入群体冲突

以服务低收入群体为宗旨的小额金融机构(MFI)近年来在中国发展迅速,其监管制度正在探索之中。国际经验表明,接受监管与不接受监管的两类机构在业务深度上存在显著差异。监管似乎抑制了MFI对低收入群体的服务,违背了其创立初衷。充足资本有助于MFI拓展业务深度,是监管可能带来的积极影响。此外,MFI的其他微观控制变量及所在国的宏观背景也会影响其业务深度。中国要防止简单套用传统金融机构的监管体制和方法,谨防业务出现漂移。     

Deregulation, market power and risk behaviour in Spanish banks

This paper provides empirical evidence on the effects of regulatory changes in the market power of Spanish banks. It also analyses the response of banks, in terms of risk-taking behaviour, as a result of a reduction in economic profits. We find that liberalisation measures have increased competition and eroded banks’ market power. We observe that banks with lower charter values tend to have lower equity-assets ratios (lower solvency) and to experience higher credit risk. The last evidence is new in the literature and calls for strengthening regulatory concerns about credit risk management by banks in situations of increased competition.     

Household allocation of microfinance credit in Kyrgyzstan

The limited endowment of resources that usually characterised low-income households imposes a binding trade-off between current and future consumption. In many transition countries, microfinance represents the primary source of credit other than informal moneylenders for low-income households which is the situation in the Kyrgyz Republic. Thus, this study analyses the determinants of household microfinance credit allocation in Kyrgyzstan from 2006 to 2010. We model the household’s behaviour through a multivariate approach to allow for multiple choices at the same time. Results indicate that mobile phone and livestock ownership were identified as two key factors which increase the probability of borrowers using microfinance credit for productive purposes. Furthermore, borrowers in the rural Naryn region, one of the poorest areas in Kyrgyzstan, have a higher probability of allocating their loans toward food purchases and the smallest probability of allocating credit toward starting a business or other productive purposes.     

Securitization of mortgage debt,domestic lending,and international risk sharing

Abstract Securitization makes mortgage‐related risks internationally tradeable and thus contributes considerably to the international diversification of macroeconomic risk: in the years 2003–2008, the increase in international cross‐holdings of securitized mortgage debt has lowered industrialized countries’ conditional consumption volatility (relative to the United States) by about 10–15 percentage points. We turn to the role of domestic credit in explaining this result. Domestic credit leads to better international risk sharing only if debt is securitized and traded internationally. Conversely, the risk‐sharing benefits from securitization seem to evaporate if credit dries up – as it did in the recent financial crisis.     

The challenge of rural financial inclusion – evidence from microfinance

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 progress in financial inclusion in rural than in urban areas.     

Credit booms and busts in emerging markets

We investigate to what extent corporate governance and risk management mitigate the involvement of banks in credit boom and bust cycles. We study a unique, hand‐collected dataset covering 156 banks from Central and Eastern Europe during 2005–2012. We document that stronger risk management is associated with more moderate pre‐crisis credit growth but not with fewer credit losses in the crisis. With respect to bank governance, we find that a higher share of foreign members on the supervisory board is associated with less rapid credit growth in the pre‐crisis period and a lower level of credit losses during the crisis period.