Microcredit games with noisy signals: Contagion and free-riding

The advent of microcredit financing has remarkably improved access to credit for the poor in many developing countries. Although several microcredit programs have adopted the joint liability scheme, economic theory suggests that joint liability could increase strategic default through contagion and free-riding. This paper aims at studying the extent of free-riding and contagion in joint liability lending. By using data from experimental repayment games conducted in Vietnam, with noisy signals that resemble actual microcredit programs, we found that subjects were motivated to free-ride under the joint liability scheme. While most empirical research in this area has focused on the problem of contagion, our findings point to the significance of investigating free-riding behavior under joint liability schemes. Analyses reveal that the free-riding tendency may be led by the irresponsiveness of repayment and shouldering behavior to the partner’s seemingly strategic default in the previous round.     

Seasonal Migration and Microcredit During Agricultural Lean Seasons: Evidence from Northwest Bangladesh

This paper investigates the interlinkage between microcredit and temporary seasonal migration, an issue which has been given little attention in the standard rural–urban migration literature. Seasonal migration due to agricultural downturns is a common phenomenon in developing countries. Using primary data from a cross‐sectional household survey of the northwest part of Bangladesh, this paper quantifies the factors that influence such migration decisions. Our results suggest that people with prior access to microcredit are more likely to migrate during an agricultural lean season. Furthermore, we find evidence of a negative selection effect between microcredit and seasonal migration, conditional on an individual's village of residence and observed characteristics. Our results have numerous potential policy implications, including the design of typical microcredit schemes for developing countries.     

Microcredit,Social Capital,and Common Pool Resources

The paper presents a conceptual scheme for understanding the impact of microcredit—small loans to poor borrowers—on common pool resources. Impacts on common pool resources are posited to occur through changes in household production and consumption, the focus on women, and the social capital created from group training, decision-making, and risk-bearing with the group lending techniques characteristic of many microcredit programs. Enhanced human and social capital can improve environmental outcomes. A nonrandom survey of microfinance organizations suggests increased environmental awareness and potential CPR stewardship through microcredit, but empirical research is needed to demonstrate actual impacts.     

Monetary Policy and Borrowers’ Loan Defaults: Research Based on Data from Renrendai

This paper uses Renrendai data to study the relationship between monetary policy and the default behavior of borrowers, and analyzes the transmission channels. The research shows that tight monetary policy will lead to a significant increase in a borrower's probability to default, and this effect will continue for several months. There may be two transmission channels: (i) monetary policy changes a debtor's liquidity through credit and balance sheet channels, which directly affects their current repayment behavior; and (ii) monetary policy may affect a borrower's investment, production and profitability, thus changing their long‐term solvency. The paper also finds that the repayment behavior of productive borrowers is more susceptible to monetary policy than consumptive borrowers, and that the default behavior of borrowers in coastal provinces is more susceptible to monetary policy than of borrowers in inland provinces. These findings provide new evidence for understanding how monetary policy affects individual behavior and its transmission mechanisms.     

Demystifying Nonparticipation in Microcredit: A Population-Based Analysis

Given the current popularity of microcredit schemes as a means of poverty alleviation, their accessibility to the poorest is of obvious concern. This paper examines a targeted microcredit program in Bangladesh to assess its coverage among the poor, and to identify program- and client-related barriers impeding participation. A population survey of over 24,000 households reveals that although three-quarters are eligible for microcredit, less than one-quarter participate. Rates of participation in microcredit are higher among poorer households. Multivariate analysis identifies lack of female education, small household size and landlessness as risk factors for nonparticipation, based on a 7% random sample of this population. The implications of these findings for poverty alleviation policies and programs are discussed.     

影响银行贷款质量因素的文献述评

贷款质量既是银行经营绩效的重要指标,也是一国金融银行体系总体健康程度的睛雨表,因此受到了政策制定者、银行管理层与学者的广泛关注和研究.本文从借款人的还款能力,借款人的还款意愿,融资约束,金融市场发育程度等四个角度综述了银行贷款质量的决定因素和形成机制,进一步探讨了银行贷款质量研究的未来可能发展方向.     

Dropouts,Defaulters, and Continuing Borrowers: Client Exit from Microfinance

High dropout rates are a problem faced by many microfinance institutions, with borrowers exiting after a few loans. The curiosity of dropouts is that, unlike defaulters, they repay their loans. To understand this I investigate differences across borrowers using data from Zimbabwe. I find that negative shocks are a significant predictor of dropout, but not of default, and that social networks are the most important correlate of on‐time repayment. The results show the importance of social networks in determining credit relationships.     

Debt and development: The role of foreign capital in economic growth

Capital flows, whether between individuals or nations, are dominated by a two- fold paradox. Borrowers are initially primarily interested in obtaining sufficient funds for their needs, but once they have obtained a loan, their indebtedness becomes their principal concern. While a loan is being negotiated the lenders usually have the upper hand, but once it is made, they become dependent on the borrowers for repayment with interest. Their power to withhold future loans becomes their only real measure of control. Borrowing and lending has costs and benefits, and these balance out only in exceptional cases for both the borrowing and lending countries and the principal social groups within them. The debate about the impact of international capital flows accordingly has a long history. This paper begins with a historical perspective, and then reviews the principal characteristics of capital flows to developing countries since the 1950s. A discussion of the impact of capital flows on development, with a particular emphasis on trends in developing country indebtedness, follows. A brief examination of borrowing and debt management issues for borrowers, lenders and the international community concludes the paper.     

Proximity,information, and loan pricing in internal capital markets: Evidence from China

We examine the effect of geographic proximity on loan pricing in internal capital markets by focusing on the role of information. Using a hand-collected dataset on entrusted loans within business groups in China, we find that loan prices are positively associated with the distance between borrowers and lenders, which suggests that a reduction in distance facilitates the monitoring of borrowers and gathering of soft information by lenders. Results remain unchanged after controlling for potential endogeneity. Our findings are further pronounced (1) for lenders with headquarters that are time constrained; (2) during the early years of our sample period, when the Internet and transportation infrastructure were less developed; and (3) for borrowers for whom information uncertainty is likely to be substantial and soft information is likely to be valuable, such as young borrowers and borrowers in different industries to lenders. This paper sheds new light on the role of geographic proximity in intra-group loans within business groups.     

银行业务中提前还款的经济学分析——谈抵押贷款的隐含性选择权

根据银行业务中抵押贷款提前偿还的经济学分析,指出了隐含于银行业务中的选择权的本质,并建立相关业务风险的简单模型,详细讨论了提前还款的隐含性选择权暴露后对于银行和客户的得失,提出了银行对借款人的选择权征收一定的费用是合理的和必须的,而且是应该被量化或定价。     

What matters more for South African households’ debt repayment difficulties?

While the increased access to consumer credit has helped many families improve their welfare, the rising repayment burdens upon a background of chronically low saving rates have generated concerns that South African families are becoming ever more financially fragile and less able to meet their consumer debt repayment obligations. Using data from the Cape Area Panel Study, this article investigates whether consumer debt repayment problems are better explained by excessive spending which leaves households financially overstretched or by negative income shocks. The results indicate that households are significantly more likely to be delinquent on their financial obligations when they suffer negative events beyond their control rather than due to the size of the expenditure burden. This suggests that consumer repayment problems are likely to endure even when consumers borrow within their means. Thus, regulatory efforts to improve mechanisms for debt relief might be more meaningful than restrictions on lending.     

Commercialization and mission drift: Evidence from a large Chinese microfinance institution

Front-line loan officers of microfinance institutions (MFIs) are important in acquiring information on potential borrowers and selecting them in accordance with the MFI's mission. We use a unique data set on loan officers and their loan portfolios from China's largest NGO microfinance institution to test whether officers' personal characteristics affect the size and quality of their loans. We study a period in which the institution shifted from reliance on government donations and subsidies to commercial sources of funding. Imposing more commercial incentives on loan officers could affect how they balance potentially competing objectives to serve the poor and pursue profitability. We find that loan officers who were formerly farmers or worked in local government were better able to maintain lending to poorer borrowers, without incurring substantially lower repayment rates on their loans. In short, it appears that the career backgrounds of loan officers did play a role in preventing mission drift.     

VULNERABILITY OF MICROFINANCE TO STRATEGIC DEFAULT AND COVARIATE SHOCKS: EVIDENCE FROM PAKISTAN

This paper investigates the repayment behavior of borrowers of a Pakistani microfinance institution (MFI) using a unique dataset of approximately 45,000 installment records over the period 1998–2007. In early 2005, the MFI introduced reforms that included improved enforcement of contingent renewal. The reforms led to a healthy situation with almost zero default rates. We hypothesize that strategic default under the joint liability mechanism was encouraged by weak enforcement of contingent renewal and was one of the factors responsible for the pre‐reform failure. To support this hypothesis, we show that before the reforms, a borrower's delay in installment repayment was correlated with other group members' repayment delays beyond the level explained by possible correlation of project failures due to locally covariate shocks. Such excessive correlation disappeared after the reforms, including the period after the 2005 Kashmir earthquake. The empirical evidence thus demonstrates the existence and seriousness of the strategic default under weak dynamic incentives.     

The Effect of Subtracting a Constant from all Payoffs in a Hawk‐Dove Game: Experimental Evidence of Loss Aversion in Strategic Behavior

Economists and psychologists have documented patterns of individual decision‐making behavior (e.g., loss aversion) whereby losses and gains are treated differently. However, there has been little evidence of such patterns in multiplayer games. I report results showing the strongest evidence I know of that this phenomenon is present in games. Experimental subjects play two hawk‐dove games that are identical up to a constant; in one, all payoffs are positive, while in the other, payoffs are negative if and only if both players choose “hawk.” Under both fixed pairs and random matching, differences between the games are substantial, significant, and consistent with loss aversion.     

Formal and informal rural credit in the Mekong River Delta of Vietnam: Interaction and accessibility

This paper examines the factors influencing rural households’ access to credit in the Vietnamese market. Analysis confirms an interaction effect between informal and formal credit sectors in which informal credit positively influences accessibility to microcredit programs. Ignoring this interaction effect may lead to microcredit providers making loan decisions that are less than optimal. In the formal credit sector, the lowest income group faces more credit rationing than other groups, despite the fact that microcredit programs are designed to target households at the bottom of the income pyramid. Results demonstrate that land holding status, informal interest, and informal loan duration are important factors influencing access to informal credit. Factors influencing microcredit accessibility include local government employee status, credit group membership, a “poor” certificate, educational attainment, working skills and village road access. To reduce reliance on informal credit and improve microcredit accessibility, rural households should actively participate in a microcredit group.     

Developing a Risk Group Predictive Model for Korean Students Falling into Bad Debt

Using direct loan data for 2012 to 2014 from the Korea Student Aid Foundation, we develop a risk group predictive model for borrowers defaulting on their loans. We used a logistic regression model and the Cox proportional hazards model to develop the risk predictive model. We verified the validity of the models using a receiver operating characteristic curve and a validation dataset. The present study shows that area under the receiver operating characteristic curves is similar for the models and that the major influencing factors for defaulting on their loans are household income, whether a national grant was received, age, whether more than two accounts are overdue, field of study and the monthly repayment amount. The risk group predictive model in this study will be the basis for more efficient management of direct student loans.     

印度小额贷款危机成因分析及对中国的启示

近年来,小额贷款在印度等发展中国家获得快速的发展,同时也引发了一些问题。本文在介绍小额贷款和印度小额贷款危机的基础上,重点分析印度小额贷款危机成因,并提出印度小额贷款危机对中国小额贷款业健康发展的启示。     

The effects of collateral on firm performance

This paper examines how collateral and personal guarantees affect firms’ ex-post performance employing a propensity score matching estimation approach. Based on a unique firm-level panel data set of more than 500 small-and-medium-sized borrower firms in Japan, we find that borrowers with high observed riskiness are more likely to pledge collateral. In addition, we find that borrowers that provide collateral to lenders experience larger increases in profitability and reductions in riskiness than borrowers that do not. The main channel through which the borrower enhances its profitability is cost-cutting restructuring. These findings are consistent with the hypothesis that collateral reduces moral hazard by providing borrowers with an incentive to enhance their creditworthiness.     

Does microcredit reduce the gender gap in employment? Evidence from Egypt

In Egypt, there is a remarkable gap between men's and women's participation in the labour market. In this study, we examine the impact of microcredit on the labour supply of men and women and subsequently investigate whether microcredit can reduce the employment gap between men and women in Egypt. We find a negative effect of microcredit on men's employment, but a positive effect on the employment of women. Borrowing from a microcredit source increases the probability of women working by 8.5 percentage points and mainly affects self‐employed work. We also find a positive effect of microcredit on work in small businesses. This finding suggests that women can use microcredit to open small shops or household businesses. Finally, using decomposition analysis, we find that microcredit reduces the overall employment gap between men and women by 0.743%.     

Why are mortgage rates so uniform?

Conclusion Any reasonable model of mortgage lending concludes that interest rates depend on loan and borrower characteristics. In this paper, the rate is a function of the loan-to-value ratio, the parameters of the densities of future price of housing and income, deposit rate, and cost of foreclosure. Nevertheless, in practice, each lender charges only one rate to all borrowers. This is first explained by the difficulty of estimation of the parameters of the density functions. Since lenders cannot categorize their borrowers, they treat them uniformly and set minimum standards to minimize the risk of default by each borrower. Mortgage insurance, moreover, enables lenders to lend risklessly outside of the range in which they can operate risklessly on their own. Second, mortgage rate uniformity is explained by the lenders' risk aversion. Third, when borrowers are separated into discrete categories, uniform rates can result from perfect categorization of borrowers with respect to the future value of the relevant random variables. It is more likely, however, that lenders cannot categorize borrowers perfectly and that interest rates vary substantially among categories. As rates jump from one category to the next and borrowers are reluctant to gain small increases in loan size at significantly higher rates, lenders respond by offering only the basic category of loans.