Microfinance in Latin America and the Caribbean: the curse and blessing of ethnic diversity

ABSTRACT

Latin America is one of the most ethnically diverse regions in the world, and is also characterized by high levels of poverty. As a poverty alleviation tool, microfinance emerged in the region and has significantly evolved over the years. However, the implications of the region’s high diversity on the performance of microfinance institutions (MFIs) are however not known. We attempt to fill this gap by providing evidence on the association between MFI performance and indices of ethnic and linguistic fractionalization. Our findings suggest that fractionalization promotes MFI financial performance but is detrimental to outreach depth. These results are robust to various sensitivity tests.     

Does microfinance affect income inequality?

This study addresses the question whether participation of the poor in microfinance contributes to reducing a country’s level of income inequality. Using data from 70 developing countries, we show that higher levels of microfinance participation are indeed associated with a reduction of the income gap between rich and poor people. We also show, however, that the effects of microfinance on reducing income inequality are relatively small. The results of this study add to the discussion on the impact of microfinance on poverty by showing that, although access to microfinance does seem to improve the relative income position of the poor, this improvement is modest, which is probably because the use of microfinance is generally small as compared to the size of the economy of the countries in our sample. Microfinance should, therefore, not be seen as a panacea for bringing down income inequality in a significant way.     

National culture and national savings: is there a link?

We study the effect of national culture on economic decisions, focusing on GLOBE cultural dimensions of uncertainty avoidance and future orientation. Specifically, we study the effect of divergence between cultural values and practices (societal aspirations), on the aggregate savings decision. Using the life-cycle model of savings as our basic model, we find that societal aspirations are important in explaining national savings behavior. In particular, we show that societal aspirations relating to future orientation and uncertainty avoidance have a positive effect on the rate of savings. We interpret our findings to indicate that such societal aspirations lead to mistrust in the societal arrangements and institutions, and induce savings as a means of securing the future and reducing uncertainty. To substantiate this interpretation, we utilize the microfinance industry; showing that high societal aspirations are associated with preference for savings through member-owned microfinance institutions (MFIs) over savings through non-member-owned MFIs.     

Microfinance and households access to credit: Evidence from Côte d’Ivoire

Evidence on microfinance services these days ironically shows a great preference for savings products rather than credit products by households. For some authors, this phenomenon is explained by the fact that microfinance products, and especially loans, from formal microfinance institutions do not fit the households demand. This paper first presents evidence on the observed phenomenon in the Ivorian microfinance sector. Second, it analyses the Ivorian credit market so as to understand the determinants of the choice for credits from formal sources versus informal sources. The results reveal the size of the loan, agricultural purpose, the geographical area where households live and ethnicity as factors influencing the choice for formal sources.     

金融发展与降低贫困——基于中国1994～2004年小额信贷的分析

小额信贷的反锁定模型证明了小额信贷通过产业反锁定、技术反锁定和结构反锁定等三条途径克服了农民增产不增收的窘境,实现了增产又增收,降低了农民的贫困程度.利用中国1994～2004年的时间序列和2004年的截面数据的实证分析也表明小额信贷增加了农民家庭经营收入,降低了贫困.最后,通过一些案例的调查数据进一步佐证了理论和实证的分析结果:小额信贷具有显著的降低贫困效应.     

Convergence of the performance of microfinance institutions: A decomposition analysis

In this paper, we focus on investigating whether and to what extent patterns of performance microfinance institutions converge over time. In particular, we analyze whether patterns of performance are related to changes in operating efficiency, capital deepening, and/or technological change for a large international sample of microfinance institutions for the period 2003–2012. We apply intertemporal Data Envelopment Analysis, a methodology that has been used extensively in the literature explaining patterns of economic growth, but has not been applied yet in microfinance research. We decompose performance changes into operating efficiency changes, changes in capital intensity and/or technological change and find that capital deepening is the most important source of improved performance, especially during the first half, while capital deepening and technological innovations are important during the second half of the period. We also find strong evidence for convergence of performance between microfinance institutions. These trends concur with important changes in microfinance, such as increased commercialization, competition with commercial banks, and involvement of private investors.     

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

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 institutions between 2004 and 2013, we find strong evidence suggesting that institutions with more social engagement – in terms of outreach to the poor – earn higher portfolio yields. We also find that measures of outreach are associated with increased operating expenses. As return figures are influenced by both costs and yield, and because both increase to a similar degree with the depth of outreach, these two effects lead to a zero sum result on return measures. This finding could explain why existing studies assessing the interaction between social outreach and different measures of financial performance in microfinance (such as return on assets/equity, operating expenses, operational self-sufficiency) have not produced consistent results.     

Microfinance and income inequality: New macrolevel evidence

This paper addresses the empirical question of whether microfinance has any impact on income inequality at the macrolevel. Very little research has been conducted on the relationship between the macrolevel scale of microfinance and income inequality over time in a country and across countries. Based on panel‐data techniques, with annual data from 85 countries from 2001 to 2012 and a broad theoretical framework on microfinance and inequality, we provide empirical evidence that suggests that increases in the macrolevel scale of microcredit in a country contribute to reducing income inequality within that country over time. Finally, since microfinance may be endogenous, we used instruments from the existing literature to control for this problem.     

Securitising the Unconscious: The Bush Doctrine of Preemption and Minority Report

Using Minority Report as its interpretive guide, this essay considers how the securitisation of the unconscious is performed in primarily fiction (film) but also ‘fact’ (US foreign policy). The essay makes two general arguments. Implicitly, it argues that American moralities and what I call US moral grammars of war are not only formulated in traditional realms of politics but in geopolitical moral imaginaries in which US foreign policy intersects with popular (often filmic) imaginaries as well as with narratives about the family. Elaborating on this final point about the family, the essay explicitly argues that the feminine is the keystone of the US moral grammar of war in the war on terror because it is the foundational figure upon whom a specific articulation of a moral US ‘we’ is constructed. What this means is that as the US ‘we’ looks ahead to who a future moral American US ‘we’ might become (which is the theme of Minority Report and a theme in everyday post-11 September American life), it ought to begin by understanding how the feminine both secures and insecures the complex relationship between justice and security, particularly as it functions in relation to the present-day Bush administration’s policies of securitising the unconscious.     

我国农村小额信贷发展中的制度影响控制探析

我国农村小额信贷可视为一项微观信贷制度创新,表现为主要依赖五要素管理的新型信贷风险管理方式.在我国农村小额信贷发展中,主流商业信贷管理方式一直产生着影响.对担保制度的偏好可能使小额信贷制度的发展成为影响农村现有物权制度的因素之一,我国农村现有物权制度的特殊性要求我们注意并控制农村小额信贷制度可能产生的这种影响.     

Are microfinance institutions resilient to economic slowdown? Evidence from their capital ratio adjustment over the business cycle

Prior studies using pre-crisis data concluded that microfinance institutions are resilient to economic crises. However, some recent studies indicate that the microfinance sector is becoming part of the global financial system and microfinance lending activities are now vulnerable to economic and financial crises. Capital being a key resource to support lending, this paper analyzes the cyclical behaviour of capital ratio using an international sample of microfinance institutions from 2001 to 2014. We uncover a negative relationship between their capital-to-assets ratios and business cycle indicators. This relationship mainly concerns regulated institutions, comprised mostly of profit-oriented MFIs, and is driven by both asset-side and capital level adjustments. We identify the lending channel (loan-to-assets ratio) as the main mechanism to explain these cyclical variations. Our findings are consistent with the “procyclicality” of capital regulation documented extensively in the banking literature. Hence, macro-prudential regulation for MFIs should target regulated and profit-oriented MFIs.     

Microfinance Control Fraud in Latin America

Over the past three decades, the global microfinance industry has witnessed phenomenal growth in terms of the numbers of borrowers and the total gross loan portfolio outstanding. An application of the criminologists' perspective and Black's theory of control fraud to the global microfinance industry reveals a high degree of overlap between the common characteristics of control frauds and the characteristics of the microfinance industry and suggests that the sector provides a criminogenic environment suitable to Ponzi-type dynamics, including an imperative of growth, misrepresentation of financial and operating performance, a reputation for integrity and innovativeness, concentration in unregulated markets and areas most conducive to accounting fraud, non-transparency and secrecy, dubious accounting methods, lobbying in favor of deregulation, attempts to suborn controls such as accountants, lawyers, regulators, and rating agencies, executive use of the company for personal gain, excessive risk taking at the expense of investors' capital, warnings raised but ignored, and, finally, inevitable collapse. Regulatory interventions are needed to prevent predatory lending and over-indebtedness of poor microfinance borrowers in Latin America and elsewhere. Such regulation, while necessary to protect the poor, is not well liked by the investment community as it places microfinance institutions under local scrutiny, reduces the profitability of the sector, and limits opportunities for control fraud.     

Creative capital,information and communication technologies,and economic growth in smart cities

ABSTRACT

We study aspects of economic growth in a stylized smart city with two distinct features. First, the modeled inhabitants of this city are smart because they possess skills. Using the language of Richard Florida, these inhabitants comprise the city’s creative class and hence they possess creative capital. Second, the city is smart because it uses information and communication technologies (ICTs) and we model one specific kind of ICT use. In this setting, we first derive expressions for three growth related metrics. Second, we use these metrics to show that the economy of smart city A converges to a balanced growth path (BGP). Third, we compute the growth rate of output per effective creative capital unit on this BGP. Fourth, we study how heterogeneity in initial conditions affects outcomes on the BGP by introducing a second smart city B into the analysis. At time t?=?0 two key savings rates in city A are twice as large as in city B. We compute the ratio of the BGP value of income per effective creative capital unit in city A to its value in city B. Finally, we compute the ratio of the BGP value of skills per effective creative capital unit in city A to its value in city B.     

Aggregation of semiorders: intransitive indifference makes a difference

Summary A semiorder can be thought of as a binary relationP for which there is a utilityu representing it in the following sense:xPy iffu(x) –u(y) > 1. We argue that weak orders (for which indifference is transitive) can not be considered a successful approximation of semiorders; for instance, a utility function representing a semiorder in the manner mentioned above is almost unique, i.e. cardinal and not only ordinal. In this paper we deal with semiorders on a product space and their relation to given semiorders on the original spaces. Following the intuition of Rubinstein we find surprising results: with the appropriate framework, it turns out that a Savage-type expected utility requires significantly weaker axioms than it does in the context of weak orders.We wish to thank Tatsuro Ichiishi, Jorge Nieto, Ariel Rubinstein, Efraim Sadka and especially David Schmeidler and anonymous referees for stimulating discussions and comments. I. Gilboa received partial financial support from NSF grants nos. IRI-8814672 and SES-9113108, as well as from the Alfred P. Sloan Foundation.     

Total factor productivity change of MENA microfinance institutions: A Malmquist productivity index approach

The main purpose of this paper is to investigate productivity changes of 33 Middle East and North Africa microfinance institutions over the period of 2006–2011 by using the Malmquist productivity index (MPI) method and a balanced panel dataset of 198 observations. The empirical findings indicate that the microfinance industry has reported overall productivity regress in the study period even though all the MENA MFIs have positive TFP growth with the exception of the year 2010–2011. In addition, our study indicates that over the period the Malmquist productivity change experienced by the MENA microfinance industry as a whole has averaged 4.9% annually which was mainly attributed to technical efficiency change. The study reveals also that the industry as a whole has exhibited a decline in technological change (2.9% decrease over the period) and suggested that there has been a deterioration in the performance of the best practicing MFIs. By decomposing the Malmquist index, the result showed that during the study period the MENA MFIs have experienced mainly an increment of pure technical efficiency (improvement in management practices) rather than an improvement in optimum size. Overall, an essential strategic implication for the MENA microfinance industry is that they need to pursue a technological progress in order to meet the dual objectives of reaching many poor people and financial sustainability.     

A socio-economic study of the borrowing process: the case of microentrepreneurs in Jordan

This paper investigates the socio-economic determinants of four stages of borrowing process of the Jordanian microfinance market. The equations and functions corresponding to the stages of the borrowing process are estimated using a sample of 474 microentrepreneurs. The main results are as follow: variables that reflect the repayment ability are the main determinants of credit rationing in the microfinance market; religious beliefs, social responsibilities, availability of local microfinance provides, application costs, level of knowledge about microfinance providers significantly affect the borrowing process of microentrepreneurs. Credit rationing is found to be a problem for some applicants, but not for the majority.     

Do microfinance institutions benefit from integrating financial and nonfinancial services?

This article examines the impact of microfinance ‘plus’ (i.e. coordinated combination of financial and nonfinancial services) on the performance of microfinance institutions (MFIs). Using a global data set of MFIs in 77 countries, we find that the provision of nonfinancial services does not harm nor improve MFIs’ financial sustainability and efficiency. The results however suggest that the provision of social services is associated with improved loan quality and greater depth of outreach.     

Do microfinance institutions fulfil their promise? Evidence from cross-country data

The concept of microfinance promises poverty reduction and economic growth. We empirically challenge this economic and social promise in an attempt to prove its fulfilment. Our multivariate regressions of economic development variables such as per capita gross national income based on PPP converted to international dollars (GNI per capita PPP), GDP growth, as well as gross capital formation and labour participation rate against specific microfinance institutions’ (MFI) variables show that the success and performance of MFIs significantly influence economic development. Microfinance directly influences economic growth through the value that MFI performance adds to purchasing power. An indirect impact comes from an improvement in capital accumulation and employment rates. These insights are valuable as the interdependencies between microfinance and economic development that this article verifies offer new and progressive insights into purposeful action that can be taken to stimulate economic development and growth. Targeted development programmes as well as socially responsible investments can be applied in developing economies in order to strengthen their growth and alleviate poverty.