External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

We investigate how external social ties, that is, social ties with individuals outside the borrowing group, determine loan repayments of individual borrowers in joint liability group lending. We measure the resources in external ties in terms of the informal risk insurance arrangement they embed. The ties borrowers have with individuals outside the group and the informal risk insurance arrangement they represent, help to survive in general, and repay their loans in particular. The risk of losing these ties increases the willingness to repay loans, that is, these ties can be regarded as a form of collateral to stimulate loan repayment. The extent to which these external ties are effectively pledged as collateral depends on the extent to which social networks of group members are overlapping: the more borrowers’ networks of external ties overlap (referred to as information channels), the higher the risk of losing the informal risk insurance arrangement in case of non-repayment. We use data from 802 mapped social networks of borrowers’ internal and external ties from a microfinance institution in Mexico. We find that group borrowers with external ties, representing a strong informal risk insurance arrangement while at the same time being information channels, have lower repayment problems     

Local Public-Services Provision under Public–Private Partnerships: Contractual Design and Contracting Parties Incentives

When deciding to resort to a PPP contract for the provision of a local public service, local governments have to consider the demand risk allocation between the contracting parties. In this article, I investigate the effects of demand risk allocation on the accountability of procuring authorities regarding consumers changing demand, as well as on the cost-reducing effort incentives of the private public-service provider. I show that contracts in which the private provider bears demand risk motivate more the public authority from responding to customer needs. This is due to the fact that consumers are empowered when the private provider bears demand risk, that is, they have the possibility to oust the private provider in case of non-satisfaction with the service provision, which provides procuring authorities with more credibility in side-trading and then more incentives to be responsive. As a consequence, I show that there is a lower matching with consumers’ preferences over time when demand risk is on the public authority rather than on the private provider, and this is corroborated in the light of two famous case studies. However, contracts in which the private provider does not bear demand risk motivate more the private provider from investing in cost-reducing efforts. I highlight then a tradeoff in the allocation of demand risk between productive and allocative efficiency. The striking policy implication of this article for local governments would be that the current trend towards a greater resort to contracts where private providers bear little or no demand risk may not be optimal. Local governments should impose demand risk on private providers within PPP contracts when they expect that consumers’ preferences over the service provision will change over time.     

VIOLENCE AND THE COSTS OF HONESTY: RETHINKING BUREAUCRATS' CHOICES TO TAKE BRIBES

Explanations of bureaucrats' decisions to take bribes include accounts of incentives as well as expectations. However, there are further considerations in violent contexts, where refusal of bribes may have dire consequences. Yet, insight into this topic is limited. This article investigates how violence upholds bribery, through interviews with South African officials who enforce regulations in communities where gangs operate. The investigation shows that when citizens offer bribes to enable rule violations, this is a process of both temptation and threats: officials who refuse bribes face intimidation by both citizens and colluding colleagues. This illustrates how violence may function as a mechanism to enforce corrupt contracts between bureaucrats and criminal citizens. Through reducing costs in such settings, bribe‐taking is partly a strategy of social protection. This has implications for policy and suggests that, besides incentives and expectations, administrative reforms may benefit from ‘fixing the security’ of bureaucrats in violent contexts.     

Microfinance and Gender: Issues,Challenges and The Road Ahead

Abstract

This special collection examines the claim that microfinance promotes gender equality. The focus is on three areas of the debate: first, the question of how successful microfinance has been in empowering women; second, whether and how negative gender discrimination operates within the sector; third, how power relations within and beyond the household shape the context and outcomes of microfinance initiatives. The papers in this collection demonstrate the divergence of circumstances and emphasise the need to go beyond the past searches for a simple narrative regarding the impact of microfinance. Rather, as the sector evolves and is incorporated into the mainstream financial system, the challenge ahead for researchers is to marshal the evidence on gendered dynamics to ensure that the gains made are built on through deeper understanding of why impact outcomes and processes differ and use this to inform new initiatives to further gender equality.     

Gunfight at the Not OK Corral: Reply to ‘High Noon for Microfinance’

Duvendack and Palmer-Jones claim to replicate Chemin (2008) and Pitt and Khandker (1998) but obtain different results and hence challenge the two papers' estimates of the impact of microfinance in Bangladesh. This response details a number of reasons to demonstrate that Duvendack and Palmer-Jones is not a replication so their results provide no evidence about the validity of either of the earlier papers or on the effectiveness of microfinance.     

Measuring the Impact of Microfinance on Women Empowerment: A Cross Country Analysis with Special Reference to India

The outreach of microfinance program is considered to be a means to enhance the economic opportunities among the women section of the population and thus have its far reaching implications to the empowerment of women. In this respect, a wide variation in the outreach of microfinance program to the women poor households is observed across countries of the world. In India, the states having higher level of microfinance outreach are also the states with a relatively high level of women empowerment. It is, thus, predicted that an all-inclusive microfinance system would strengthen the process of financial inclusion in India and thereby would promote women’s empowerment.     

Loan Officers’ Gender and Microfinance Repayment Rates

This study examines the impact of loan officer characteristics on repayment rates of microfinance borrowers in Mexico applying multilevel analyses, with special attention to the impact of the gender of the loan officer on default rates. The results strongly suggest that loan officers play a crucial role in improving repayment rates in microfinance and that male loan officers are better able to induce borrowers to repay than female loan officers. This may be because men exert authority over women and face fewer problems working late, travelling through unsafe places, and combining a position as counsellor with enforcing repayment.     

Micro-Finance,Women’s Empowerment and Fertility Decline in Bangladesh: How Important Was Women’s Agency?

Abstract

As Nobel Prize winner Amartya Sen has argued “[Bangladesh’s development achievements have] important lessons for other countries across the globe, [in particular a focus on] reducing gender inequality”. A major avenue through which this emphasis has been manifest lies, according to this narrative, in enhancements to women’s agency for instrumental and intrinsic reasons particularly through innovations in family planning and microfinance. The “Bangladesh paradox” of improved wellbeing despite low economic growth over the last four decades is claimed as a paradigmatic case of the spread of both modern family planning programmes and microfinance leading to women’s empowerment and fertility reduction. In this paper we show that the links between microfinance, empowerment and fertility reduction, are fraught with problems, and far from robust; hence the claimed causal links between microfinance and family planning via women’s empowerment needs to be further reconsidered.     

Inter-Jurisdictional Economic Development: A Political Institution Explanation for Policy Choice

This study examines the role of formal institutions and rules of government in the formation of joint venture agreements for economic development. Research suggests local governing arrangements play an influential role in the policy area of local economic development. This study presents an argument that form of government provides incentives that influence the decision to establish a developmental, redistributive, or regional interjurisdictional agreement. The results of a multinomial logit model using survey data collected from 12 metropolitan areas provides evidence to support the hypotheses that unreformed governing institutions, compared to cities with an appointed professional manager, are more likely to form joint venture agreements that are developmental in nature.     

Who Benefits? The Interactional Determinants of Microfinance’s Varied Effects

Since its emergence as a development tool, scholars and practitioners have questioned microfinance’s short- and long-term impacts but have had insufficient empirical evidence to assess them. To address this gap, this paper draws on mixed method research to assess the effects of microfinance loan and educational services over time. It explores why, even within the same microfinance institution (MFI), some borrowers benefit from microfinance services more than others in the short-term, and examines how this translates into long-term impacts. The article identifies understudied sources of intra-group variation: the diversity and choices of borrowers and MFI employees interacting with each other and their broader contexts.     

Microfinancing the Developing World: how small loans empower local economies and catalyse neoliberalism's endgame

Co-finance has steadily grown to provide credit to hundreds of thousands of individuals living in third world countries. The spreading of and innovation within the microfinance sector demonstrates a successful neoliberal initiative that is both socially conscious and economically beneficial. By connecting groups of poor individuals to lending institutions or affluent individuals in developed countries, microloans have been able to foster the strengthening of local economies, necessary for consuming life-improving technology, while incurring minimal risk to the lending party. Criticisms of microfinance—both non-profit and for-profit models—appear misguided as there are clear data demonstrating both a low incidence of default and modest interest rates. Moreover, credit has been the foundation for modern economic growth. Ethical lending to the Third World should therefore not be denied, but rather intensified through the faculty of microfinance.     

Do Risky Microfinance Borrowers Really Invest in Risky Projects? Experimental Evidence from Bolivia

Abstract

This paper reports the results of an experiment testing a fundamental assumption in Stiglitz and Weiss’ (1981) model of credit rationing: that defaulting borrowers are associated with investment in risky projects. Through an artefactual field experiment with 200 Bolivian microfinance borrowers, we observe that subjects from real-world delinquent borrowing groups do not prefer risky projects to safer ones significantly more than subjects from repaying groups. Instead, our results support more recent behavioural theories of credit market failure. Implications are that defaulting microfinance borrowers may be those who take too little investment risk rather than those who take too much.     

Microfinance and Loan Officers’ Work Experiences: Perspectives from Zambia

This article studies the challenges faced by microfinance institutions in Zambia, whose remit it is to provide financial services to the poor. It focuses on loan officers – the agents of delivery on the ground. With reference to loan officers’ experiences and words, the paper examines how gender and education shape and structure their day-to-day encounters. The study finds that different social spaces – ’the office’ and ‘the field’ – and wider context explains the gendered, culturally complex and multidimensional nature of developmental work at grassroots level. Social expectations emerge as major pressure points more for female loan officers than their male counterparts, making them less suitable for microfinance work, which has traditionally targeted poor women.     

The Politics of Subversion in Development Practice: An Exploration of Microfinance in Nepal and Vietnam

This paper considers the ways in which beneficiaries of microfinance programmes in two Asian countries routinely transgress programme protocols and regulations, and fail to conform to the entrepreneurial subjectivities the programmes seek to promote. It aims to develop an interpretive framework for these practices. Specifically, we take up Abu-Lughod's injunction to ‘use resistance as a diagnostic of power’ in order to explore the political rationalities and governmental technologies of microfinance, as well as the cultural ideologies and material conditions in particular locales. We then consider the difficult question of political agency by drawing on prevailing theories of resistance to develop a typology that distinguishes among three overlapping kinds of transgressive practices. The objective ultimately is to explore how this interpretive framework might contribute to imagining more politically engaged and responsive models of development, as well as to critiquing the market-oriented foundation of existing models.     

Focus on Women in Microfinance Institutions

We provide empirical evidence on focusing on women in microfinance and its consequences for microfinance institutions (MFIs). Based on a global dataset, the results indicate that a focus on women is associated with group-lending methods, international orientation, smaller loans, and non-commercial legal status. We find that a focus on women significantly improves repayment but does not enhance overall financial performance because of higher relative costs. Moreover, the higher relative costs do not stem from servicing women per se but from the smaller loans offered to women and the group-lending methodology practised by MFIs focusing on women.     

The ‘Impossible’ Default: Qualitative Data on Borrower Responses to Two Types of Social-Collateral Microfinance Structures in Rural China

Qualitative data reveal how the social context underlying the ties linking borrowers in microfinance programmes influences their decisions. Focusing directly on social context makes it possible to distinguish between two social-collateral structures and explain why one facilitated repayment while the other did not. Fieldwork in rural China shows that the basis of the social ties in the social-collateral structure is central to explaining whether and why individuals decided to sanction defaulters and repay loans. The article closes with reflections on generalisations of these findings to future microfinance research.     

High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh

Recently, microfinance has come under increasing criticism raising questions of the validity of iconic studies which have justified it, such as Pitt and Khandker. Chemin applied propensity score matching to the Pitt and Khandker data, finding different impacts, but does not disaggregate by gender of borrower. We first replicate Chemin and extend his analysis in two ways. We test the robustness of propensity score matching results to selection on unobservables using sensitivity analysis, and we investigate propensity score matching estimates of impacts by gender of borrowers. The mainly insignificant impacts of microfinance differ greatly by gender of borrower, but are all vulnerable to selection on unobservables. We are therefore not convinced that the relationships between microfinance and outcomes are causal with these data.     

The Benefits and Costs of Microfinance: Evidence from Bangladesh

Using the latest developments from the evaluation literature, namely the technique of matching, this paper shows a positive, but lower than previously thought, effect of microfinance on expenditure per capita, supply of labour, and level of school enrolment for boys and girls. For instance, participants spend 3 per cent more on average than non-participants in control villages. This paper also takes into account repayment delays to calculate the cost of credit provision. It shows how a better investigation at the individual level of the benefits brought and the cost borne could help microfinance institutions to better select their customers.

JEL Classification : C14, D10, G21, I38, O12, O16     

The Effects of a Calamity on Income and Wellbeing of Poor Microfinance Borrowers: The Case of the 2004 Tsunami Shock

We investigate the effects of the 2004 Tsunami on a sample of microfinance borrowers. Our findings show that the severe loss of income of damaged borrowers only partially explains the dip in wellbeing. This is because the latter is also related to economic losses not measured by current income (that is, loss in wealth or in permanent income) and by psychological or emotional effects. Finally, we find that the role of risk on the Tsunami impact is partially captured by the interaction of the damage dummy with borrowers' productive activity.     

Microfinance and Poverty in Bolivia

Both in its institutional range and in its penetration of financial markets, the microfinance sector in Bolivia rivals any in the world, and has played a major part in extracting the macro-economy from meltdown since the mid-1980s. We seek specifically to assess its impact on poverty, and do this through small-sample surveys on four microfinance institutions, two urban and two rural, using a range of poverty concepts: income (generated both through the borrower's enterprise and through the labour market), asset holdings and diversity, and various measures of vulnerability. All the institutions studied had, on balance, positive impacts on income and asset levels, with income impacts correlating negatively with income on account of poor households choosing to invest in low-risk, low-return assets. Microfinance may, however, augment vulnerability: average debt-service ratios of microfinance clients are disturbingly high, and if the coping mechanisms used by borrowers fail, borrowers may be forced out of the microfinance system, possibly resulting in decapitalisation and impoverishment. Poorer households are more restricted in their choice of coping strategy, and many as a consequence 'choose' coping strategies more likely to jeopardise their long-term income prospects, in particular asset sales and cuts in children's schooling. The more successful low-income borrowers are those who have voluntary savings deposits and do not rush into fixed capital purchases too early: collapse back into poverty is associated with multiple crises and the failure of one or more 'safety nets', in particular of one or more 'safety nets', in particular support from a member's solidarity group. The following actions appear to be promising for the further reduction of poverty in Bolivia: stronger efforts to mobilise rural savings, removal of lower limits on loan size, and the introduction of appropriate insurance mechanisms. In comparison with other anti-poverty measures, microfinance appears to be successful and relative cheap at reducing the poverty of those close to the poverty line, but ineffective, by comparison with labour-market and infrastructural measures, in reducing extreme poverty.