The Role of Savings and Credit in Coping with Idiosyncratic Household Shocks

This study examines the effect of access to formal banking services on households’ ability to smooth consumption in response to illness of adult workers. The institutional peculiarities of Indonesia’s largest commercial bank are exploited to separately estimate the effects of access to formal credit from savings. The means by which households smooth consumption differs depending on their access to formal services. Those with access to formal credit increase borrowing from banks, while those with access only to formal savings, but not credit, draw down on savings. Households without access to formal banking services end up liquidating productive assets.     

Dynamics of Indonesian democratisation

Financial sector liberalisation has led to market failure on a massive scale. In industrial countries market failure led to the Great Financial Crisis that erupted in 2007 and continues into its fifth year. In developing countries liberalised financial markets have failed to provide access to financial services for the vast majority of households and firms. Small and medium-sized enterprises (smes), which are critical for employment, income creation and economic development, are particularly excluded by liberalised private financial markets. Market failure necessitates government intervention. To enhance smes' financial access requires an activist role by governments—not only by ensuring an enabling policy framework and financial infrastructure for smes, but also by supporting direct provision of financial services through national development banks and directed credit programmes. More broadly the crisis also provides an opening for a neo-structuralist development paradigm to replace the failed Washington Consensus. In this context activist financial sector policies should be integrated with industrial sector strategies.     

An analysis of offer functions of banks and credit unions in Guatemala

Economists have sought to identify institutions which might fill the gap in household access to credit arising from rationing by formal lenders. Credit unions have been identified as institutions which might use informational and monitoring advantages to fill that gap. Using information on household perceptions of their access to credit, this article analyses the impact of certain credit unions on the access to credit of households in Guatemala. Regression results indicate that credit unions serve markets unserved by formal lenders and that information on household perceptions of their access to credit is important in making inferences about lender lending activities.     

Speaking from the periphery

Many households and businesses in developing countries are said to face credit constraints which limit their ability to undertake investments in various production-enhancing economic activities required to reduce poverty. This limited access to formal credit is often attributed to the lack of ‘acceptable’ collateral, resulting from the absence of formally registered land titles. Despite the fact that this assertion is fast gaining ground, land registration has not been found empirically to positively influence access to credit. This article seeks to critically examine the above argument and provide credible theoretical explanations as to why previous studies in the developing world have failed to establish any significant positive link between land registration and access to credit. It is argued that formalising property titles alone will not be enough solve the problem of limited access to credit in the developing world.     

The impact of formal finance on the rural economy of India

This paper explores the use of informal credit as a strategy for managing risks by market women in northern Ghana. A broad concept of the costs of risk management strategies is introduced and encompasses both a time and monetary dimension. Based on qualitative data, the analysis reveals that market women invest a considerable amount of time in maintaining complex networks of informal credit providers to ensure their access to credit once a shock occurs. Informal credit involves high transaction costs and prevents market women from growing out of poverty in the long term.     

Credit access,human capital and class structure mobility

This article examines the impact of microenterprise credit programmes on class structure mobility in developing countries. It develops a model that endogenously generates an eight‐fold class structure. Class membership is determined by optimal choice of labour activity, which is a function of access to credit and human capital endowments. Predictions from the model suggest that better access to credit will foster upward class mobility among self‐employed entrepreneurs, and that this upward class mobility will be accentuated among entrepreneurs with high levels of human capital. Theoretical predictions from the model are compared with data on class structure mobility collected first‐hand in western Guatemala. Empirical results show that upward class structure mobility increases substantially with access to credit, and also suggest that the combined effect of innate entrepreneurial ability and credit access has a greater impact on upward class structure mobility than the interaction between formal schooling and credit access.     

Enhancing Smallholder Access to Agricultural Machinery Services: Lessons from Bangladesh

Resource poor smallholders in developing countries often lack access to capital goods such as farm machinery. Enabling adequate access through machinery services can thereby significantly contribute to food security and farm incomes. At the core of the service provision model is the lead farmer, who makes the initial investment in agricultural machinery, and provides services to others on a fee-for-service basis. Profiling the lead farmers can thereby provide important lessons and scaling implications. The present paper provides a case study of Bangladesh, using primary data to characterise the lead farmers. General education, credit availability and risk taking attitude play significant roles in whether or not a farm household will be a lead farmer in Bangladesh.     

The Credit Constraints of Market-Oriented Farmers in Chile

Using data from two surveys conducted in 2006 and 2008 with 177 farmers, this article determines whether market-oriented farmers in central Chile are credit constrained, and it identifies the main factors that influence formal credit provision. In so doing, this study explicitly tests whether social capital variables play a role in determining credit constraints. That is, the authors explore the determinants of classifications into four categories of credit provision and rationing, using a panel multinomial logit model. The results suggest that most market-oriented farmers are unconstrained. Empirical evidence supports the importance of relationship variables for improving access to financial capital.     

The Impact of Trade Credit on Customer Switching Behaviour: Evidence from the Tanzanian Rice Market

We use primary survey data to analyse the relationship between trade credit and customer switching in the context of trade transactions between wholesalers and retailers in the Tanzanian rice market. Results reveal a negative relation of trade credit and customer switching, that is, trade credit acts as a switching barrier; retailers are reluctant to move to another supplier if they depend on trade credit as a source of external finance. This interpretation fits with the underdeveloped financial markets in Tanzania, in which access to external finance is poor among rice retailers.     

Social Capital and Access to Credit: Evidence from Uganda

We use a nationally representative survey in Uganda to study the links between social capital and financial access. Our results indicate a positive association between individual social capital and access to institutional credit, but no significant relationship between generalised trust and credit access. The effect of individual social capital is more pronounced for poorer people, in rural areas, and in areas where generalised trust is low. Individual social capital seems to promote access especially to semiformal and informal financial institutions.     

The Gender Gap in Agricultural Productivity: The Role of Market Imperfections

This paper hypothesises that labour and credit market imperfections – by discouraging off-farm income-generating activities and restricting access to inputs, respectively – affect female farm productivity more deeply than male productivity. The paper develops a theoretical model, which decomposes the contribution of various market imperfections to the gender productivity gap. Empirically we show that agricultural labour productivity is, on average, 44 per cent lower on female-headed plots than on those managed by male heads. 34 per cent of this gap is explained by differences in labour market access and 29 per cent by differences in credit access.     

Management Quality and State Bond Ratings: Exploring the Links between Public Management and Fiscal Outcomes

How and when does management matter for government performance? Focusing on the quality of core management systems, this study proposes that one way management contributes to government effectiveness is by facilitating access to low-cost credit. However, whether well-managed systems have greater access to low-cost debt compared to poorly managed organizations depends in part on prevailing conditions in the external environment. The study tests these propositions in the context of state governments' general obligation bond ratings. Results from the pooled Tobit models show that states with higher-quality management systems are rewarded with higher bond ratings. However, the positive effects of management on bond ratings are attenuated when the economy deteriorates or political uncertainties increase.     

Meeting the Information Needs of Older People: A Challenge for Local Governance

The challenge of the ageing population is not just to provide more services but to employ new strategies. One of these is the need to rethink the provision of information to older people and their carers. This paper makes four points. First, that information and access to information have become more critical issues. Second, that older people may place a much higher value on information than other citizen groups but their access is poor for a range of reasons. Third, that the processes by which older people seek information may be empowering. Finally, effective partnerships with creative older people can be a catalyst to changing governance cultures which is a vital step in modernising local government. The paper draws upon examples from the author's experience of working alongside older people under the umbrella of the Better Life in Later Life project in Newcastle upon Tyne.     

Seasonality,differential access and interlinking of labour and credit

This article explains the interlinking of rural labour and credit transactions in terms of differential access to credit markets and seasonality. A model is developed which incorporates not only seasonality and differential access but also several other explanations for interlinking suggested in the literature. Moreover, it allows one to test the sensitivity of the results to differing powers on the part of landowners relative to working households.     

Connectedness and SME Financing in Post-Communist Economies: Evidence from Uzbekistan

Abstract

This paper investigates effects of interpersonal links with bureaucrats on SME access to formal finance. A survey of 502 SMEs in post-communist Uzbekistan shows fewer SMEs with government connections express a need for external finance, but success rates of applications are higher than for SMEs without connections. Econometric models show government-connected SMEs receive more formal credit than their counterparts. The small share of SME credit available is thus distributed in favour of those capitalising on bureaucratic links, with consequent resource misallocation. Findings imply that greater SME credit flows need supplementing with capacity building that improves bank transparency and efficiency.     

The Formal Divide: Customary Rights and the Allocation of Credit to Agriculture in Tanzania

It is generally held that one mechanism to enable inclusive growth in Tanzania is enabling farmers to access credit to raise productivity and incomes. The formalisation of property rights in Tanzania is being undertaken by a multiplicity of actors at great expense to donors, individuals and the government. While there have been a variety of different justifications for allocating Certificates of Customary Rights of Occupancy (CCROs) to farmers in Tanzania, perhaps the most prominent argument is that it will enable farmers to finally overcome the divide between ‘informal’ customary rights and the formal banking sector. CCROs would provide the collateral that would induce banks to lend money to small-scale farmers. As part of a six-year investigation in Manyara, Mbeya and Dodoma regions, our research team evaluated the impact of formalisation on farmers’ access to credit. The paper will present the results while pointing to the continuing institutional and market imperfections that perpetuate the formal divide.     

Analysing credit risk in large local governments: an empirical study in Spain

In governments throughout the world, bank lending excesses, solvency issues and worsening credit ratings have all contributed to raising risk premiums and impeding access to credit, thus provoking a major financial problem in the public sector. Accordingly, tax authorities and regulators need to analyse the causes of public sector bank debt, doing so through the joint study of idiosyncratic and systematic variables, an area that has been neglected in previous research. This paper examines idiosyncratic and systematic factors that may influence local government credit risk through an empirical study of the performance of 148 large Spanish municipalities during 2006–2011. We identify individual factors relevant to the probability of local government default (such as dependent population, per capita income and debt composition) and also determinants associated with macroeconomic developments, such as gross domestic product and the risk premium.     

How Infrastructure and Financial Institutions Affect Rural Income and Poverty: Evidence from Bangladesh

The mechanisms by which the poor benefit from economic growth remain a topic of debate in development literature. We address this issue in the context of rural Bangladesh, using a pooled dataset of three household panels between 1991–2001. Expansion of irrigation, paved roads, electricity, and access to formal and informal credit have (through different veins) led to higher rural farm and non-farm incomes, accounting for exogenous local agroclimatic endowments that explain a large part of the variation in the growth of infrastructure and credit programmes. However, this has not translated into substantial reductions in poverty for the poorest households.