Colonization and the Rule of Law: Comparing the Effectiveness of Common Law and Civil Law Countries

The rule of law is one of the most important components of any explanation of cross-national differences in economic well-being. But what leads to better rule of law in a country? Using an institutional approach this paper probes the effect of legal systems in influencing the rule of law. There has long been speculation that the countries adopting English common law are better at providing legal dispute resolution than those adopting the continental forms of civil law. That speculative assessment is found to be true only in those countries that have been colonized, further analysis demonstrates that it is the effectiveness of the protection of property rights in common law systems rather than the institutions themselves that influence rule of law statistics. The paper calls for a more refined examination of legal systems which takes into consideration whether law is organically developed or transplanted.     

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.     

Determinants of margin in microfinance institutions

Microfinance institutions (MFIs) lend to the poor. However, microfinance clients suffer from high interest rates, a type of poverty penalty. This article analyses the margin determinants in MFIs. A banking model has been adapted to microfinance. This model has been tested using 9-year panel data. Some factors explaining bank margin also explain MFI margin, with operating costs being the most important factor. Specific microfinance factors are donations and legal status, as regulated MFIs can collect deposits. It has also been found that MFIs operating in countries with a high level of financial inclusion have low margins.     

Outreach and performance of microfinance institutions: a panel analysis

Using a panel of 764 microfinance institutions (MFIs) from 87 countries, this study analyses the possible trade-off between outreach and performance and shows that greater depth of outreach has a positive impact on the financial performance of an MFI. The empirical results of this study should dispel the widely held apprehension that the recent emphasis on attainment of financial sustainability by the MFIs could seriously impair their outreach efforts and shows that outreach to the poor can actually bolster financial performance.     

Do women borrowers augment financial performance of MFIs?

There is some consensus that depth of outreach and financial performance of Microfinance Institutions (MFI) are positively correlated. A majority of microcredit borrowers are women and since the prevalence of female borrowers is even greater among the very poor, there should be a positive correlation between female borrowers and financial performance. Most of the MFIs target women as preferred borrowers. However, no study to date has investigated the relationship between targeting women and MFI’s sustainability with respect to profitability and yield. Utilizing a panel of 892 MFIs over a period of 10 years, this study shows that increased proportion of women borrowers has a statistically significant positive impact on yield and financial performance of MFIs. Consequently, this article also analyses the implication as to whether female borrowers have better repayment rate than male borrowers.     

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.     

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.     

Stock return, risk, and legal environment around the world

This paper investigates how the legal environment in a country influences performance and risk of stock across countries at different developmental stages and of various rules of jurisdiction. Using data of 4916 stocks from 37 countries, our empirical findings confirm that equities in countries with English common law origin have higher risk premiums than those in civil law countries, particularly for countries of the French/Spanish code. The indicators representing high efficiency in law system, low corruption, strong legal protection of investors' rights, and reliable political environment are associated with low risk and high performance. The various elements of legal procedural formalism, however, have differing effects on volatility and return.     

ARE FINANCIAL AND SOCIAL EFFICIENCY MUTUALLY EXCLUSIVE? A CASE STUDY OF VIETNAMESE MICROFINANCE INSTITUTIONS

A major debate in microfinance focuses on the existence of a trade‐off between the financial sustainability of microfinance institutions (MFIs) and their outreach to poor clients. This paper adds to this debate by analyzing whether financial and social efficiency are mutually exclusive in a context of implicit subsidies by the state and international donors. We use data from a sample of 28 Vietnamese MFIs and apply Data Envelopment Analysis (DEA) to identify the existence of a trade‐off. Our analysis shows that for Vietnamese MFIs financial and social efficiency are not related. We interpret this as evidence for the fact that there is no support to believe that there is such a trade‐off. Subsidies, based on which most Vietnamese MFIs currently operate, helps them to show high financial efficiency, while at the same time being able to attain their social goals. Nevertheless, this model may not be sustainable in the long‐term.     

Credit risk assessment in the microfinance industry

This paper discusses credit risk assessment through conventional and specialized credit evaluation metrics. I find that low credit risk is a direct consequence of sound implementation of good governance practices and sustainable financial performance through sound qualitative and quantitative risk management tools. Furthermore, I find that the depth and breadth of outreach and write‐off are by some margin the two most important determinant indicators of a microfinance institutions’ (MFI’s) credit risk control. In addition, I demonstrate that there is no significant statistical difference in terms of risk management among the different types of MFIs. Results also suggest that constructive regulation to promote MFIs has a non‐negligible impact on the risk assessment of MFIs.     

A New Test of Price Dispersion

In recent years considerable attention has been devoted to differences across countries in the institutional environments in which corporations operate, and the consequences of these institutional differences for corporate performance. In this paper we test for the presence of differences in corporate performance across 38 countries, and in particular whether these differences are related to the types of legal systems existing in each country. To measure corporate performance we estimate returns on investment relative to company costs of capital in each country. We find significant differences in the investment performance of corporations across our sample of countries. Companies in countries with English-origin, common law legal systems perform significantly better on average than do those in civil law systems.     

Is the model “loans‐plus‐savings” better for microfinance in Eastern Europe and Central Asia? A propensity score matching comparison

Microfinance institutions are gradually evolving into multiservice organizations offering not only loans but also savings, and other financial and nonfinancial services. We contribute to the literature aimed at identifying how combining credit with savings affects outreach and sustainability in microfinance institutions (MFIs). We apply the propensity score matching method as well as its augmented dose–response version to compare the performance of loans‐plus‐savings MFIs with that of lending‐only in a sample of 710 observations from Eastern Europe and Central Asia. Owing to our unique capital structure data, we control for the use of subsidized capital, which related work ignores while existing evidence points to tradeoffs between subsidies and savings. We find that financial performance and breadth of outreach are positively associated with savings mobilization, while the evidence on depth of outreach points to a possible mission drift.     

微型金融机构双重目标的冲突与治理:研究进展述评

微型金融机构要同时实现财务可持续(财务目标)与减缓贫困(社会目标)两大目标,然而,这两个目标间的冲突问题却长期困扰着其发展。本文系统整理了国内外有关微型金融机构双重目标冲突与治理领域的理论与实证文献,研究发现对微型金融机构双重目标是否冲突在理论和实证研究中均存在争议。伴随着微型金融商业化,目标偏离已成为双重目标冲突的新表现,但通过实施社会绩效管理,微型金融机构可以有效地降低双重目标间的冲突。虽然我国农村金融机构双重目标冲突问题已经显现,但相关研究并不多。因此,我国未来的研究应该集中在界定农村金融机构双重目标含义、构建评估体系、制定报告标准、探索双重目标约束下的可持续发展机制等方面。     

Pursuing efficiency: a data envelopment analysis of MFIs in Latin America

This article analyses the overall profitability efficiency (PE) of Microfinance Institutions (MFIs) in Latin America. The PE of each MFI in the study is broken down into two components: pure technical efficiency and scale efficiency. One data envelopment model is used to analyse each component. Each MFI was labelled as either a bank, cooperative and credit union, nonbanking financial institution or non-governmental organization, and then the analysis was performed on each separate group. The results suggest that, on average, banks are the most efficient MFIs; while NGOs are, on average, the least efficient MFIs. On average, all 4 groups are more pure technically efficient than scale efficient. Banks, nongovernmental organizations, nonbanking financial institutions, cooperatives and credit unions all seem to have problems with scale efficiency. Many MFIs seem to be operating on the increasing returns to scale frontier and are in a more favourable position for expansion.     

Culture,legal heritage and the regulation of labor

According to cross-cultural psychologists, cross-country differences in individualism vs. collectivism constitute an important dimension of cultural variation. Legal-economic theorists argue that legal philosophies such as common law and civil law have developed differently over centuries and have persistent effects. In this paper, we argue that the effects of culture and institutions should not be analyzed in isolation from each other, as this disregards their interactions. We merge the two separate literatures on cultural attributes and legal origin theories, and derive a hypothesis regarding their joint effects on labor market regulations. We hypothesize that the effect of individualism on the political determination of labor regulations should be particularly pronounced in more market-oriented economic systems (as in British common law countries) compared to more rigid and bureaucratic state-centered systems (as in French civil law countries). Market oriented economies give individual effort and ability greater room to flourish, which in individualistic cultures yields weaker labor regulations. The effect of individualism should be smaller in state centered systems. Using data on the average rigidity of labor regulations during the years 1950–2004 in 86 countries, we find that the negative effect of individualism on the rigidity of labor regulations is enhanced by the presence of a common law legal system. In fact, individualism has no effect on the rigidity of labor market regulations in civil law countries. Analogously, the negative effect of common law legal origin on labor market regulations is found to be conditional on the level of individualism. Individualism and common law legal systems are complements in the determination of labor regulations.     

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。     

法律环境、金融结构与企业最优破产机制的经济学分析——对我国新企业破产法债务人机制的商榷

我国正在审议中的新破产法中的一个突破就是借鉴美国破产法的规定采取了债务人主导的破产重整方式。已有的经济学研究表明,法律环境与金融结构是密切相关的,在一个博弈模型中,本文认为,由于我国银行主导型金融结构决定的信息结构与英美发达国家的资本主导型金融结构决定的信息结构是不同的,因而最优破产机制的设计应该要考虑到金融结构的差异．银行主导型金融结构宜采取单一债权人机制,而资本市场主导型金融结构宜采取随机双元机制。     

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.     

Financial development in adversarial and inquisitorial legal systems

This paper aims to understand why common law countries have more developed financial markets than civil law countries. One difference between these two legal origins is the procedure of evidence collection for a trial: It is adversarial in common law and inquisitorial in civil law. The adversarial system delegates the collection of evidence to a larger extent to lawyers than the inquisitorial system does. The paper presents a model of law and finance in which investors use courts to enforce their financial contracts with entrepreneurs. Investors are willing to lend more if courts collect evidence more efficiently. Financial markets are more developed in the adversarial than in the inquisitorial system if investors are richer than entrepreneurs or if lawyers are more productive than judges. Manipulation of evidence by lawyers has an ambiguous impact on finance.     

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.