Microfinance social performance: A global empirical study

Over the years, microfinance has been purported to have experienced enormous progress and is seen to contribute towards poverty reduction by extending finance to people previously excluded from formal financial markets. However, the question on how microfinance social performance is assessed remains unresolved. The paper develops an original social performance rating for 878 microfinance institutions (MFIs), across all geographic regions in the world for a period of 11 years (2000-2010). Furthermore, the paper investigates whether or not the age, assets, regulation status, loans per loan officers, as well as the profit status of MFIs affect MFIs’ ability to perform socially

Strength of weak ties in microfinance

Executive briefing paper No. 7, which is an additional project report as part of the 'Optimising the Dual Goals of Microfinance' research being funded by the Leverhulme Trust. The report summarises up-to-date findings arising from the PhD research

Escape the low-growth trap? Microfinance in Tanzania

Tanzania is a small-sized economy, with a large portion of the population below the poverty line of $2 a day, particularly in rural areas. Finscope 2009, a national survey, provides evidence that 56% of the population has no access to financial services, a proportion that has slightly grown over the last few years. The main reasons given by respondents for not having loans, bank accounts or savings are practical obstacles (especially geographical distance), costs and lack of information – thereby suggesting that there is a large unmet demand for “accessible” financial services. Microfinance has endeavoured to address these needs, devising solutions to provide the poorer segments of the population with credit and – to a lesser extent – insurance, leasing and transfers. However, the Tanzanian microfinance market is still tiny, young, and dominated by a small number of major organisations; it is mostly active in Dar es Salaam and Arusha, with limited penetration in rural areas. What are, then, the barriers to its growth, and what steps can be taken to overcome them? Our study of microfinance in Tanzania, now at the end of its second year, addresses these concerns by widening its perspective, from case studies of individual microfinance institutions (MFIs) to the whole set of actors and stakeholders that operate in the field. More precisely, we adopt a network approach that places emphasis on the structure of inter-organisational partnerships that relate MFIs to relevant stakeholders, funders, and regulators; by so doing, we aim to bring to light systemic issues and to identify suitable policy responses

Crisis in Indian microfinance and a way forward: governance reforms and the Tamil Nadu model

In recent months, microfinance practitioners worldwide have been holding their breath over events unfolding in India. Beginning in summer 2010 with controversies surrounding the IPO of SKS, a large microfinance institution (MFI) and a major player in the market, the crisis subsequently exacerbated in the state of Andhra Pradesh, with borrowers defaulting on payments and taking their lives. Echoed by the media, hostility to microfinance rose to unprecedented levels and some politicians even encouraged borrowers not to pay back their micro-loans. In fear of deterioration of MFIs’ financial solidity, numerous banks suspended flows of funds to them, leaving them severely cash-strapped. Yet until recently, Indian MFIs were widely praised for their contribution to the fight against poverty. By providing financial services to low-income clients, particularly women who would otherwise have limited or no access to them, microfinance has enabled them to develop small businesses and to reduce the volatility of their incomes. Even tiny loans have often been sufficient to empower the Indian poor. How, then, can the current turbulence be explained? Our study of microfinance in India, now at the end of its second year, addresses these concerns in a twofold way. First, it has extended from the study of a single, focal partner institution to a more global picture of the whole set of inter-organisational partnerships that relate MFIs to relevant stakeholders and regulators; as such, it is best positioned to bring to light systemic issues and to identify suitable policy responses. Second, our analysis focuses on the state of Tamil Nadu, geographically close to Andhra Pradesh and similar to it in terms of size and maturity of the microfinance market, but where the crisis has not spread. It thus enables to identify differences in the operations of MFIs in the two states which, despite a common landscape, may explain their differential capacity to achieve financial and social performance. On this basis, our analysis aims to contribute to the definition of a more sustainable model of microfinance, possibly to be extended to other parts of India

Microfinance institutions: financial sustainability and efficiency

The main objective of this research is to analyse the relationship between financial sustainability and efficiency of Microfinance Institutions (MFIs) in terms of outreach to the poor as well as the relation between gender and repayment in microfinance. The sample used is composed of all MFIs in the globe as reported to MixMarket. Our study covers the period 2000-2010. The study also investigates whether the current global financial crisis has had any effects on the issues we study. Our dataset is organised as a panel dataset given that we have multiple observations on the same economic units and a number of periods over time. The estimation techniques are based on the fixed-effects (FE) and random-effects (RE) models. However we use the Hausman test in order to make a choice between FE and RE approaches. Our results show that FE models perform better that RE models through all the period of analysis. For the whole period of analysis results show that MFIs focusing on female clients, are characterized by a greater size of loans provided. On the other hand, we also find that the credit risk in microfinance institutions increases as the number of female clients raise

Financial services for SME fisheries: the case study of South Africa

The primary objective of the South Africa case study has been to assess the availability of and access to financial services by SMEs in the fisheries sector. Fieldwork took place during 6-12 March 2011 in Cape Town, Port Elizabeth and Port St Francis, while desk research provided background information about the overall context of the economy and the fisheries sector in South Africa. This summary highlights key findings surrounding three areas: (1) overall context of finance for fisheries in South Africa; (2) current external and internal constraints to the development of the squid and tuna sectors; and (3) financial models for SMEs in the fisheries sector

Using the Rural Economic and Enterprise Development (REED) framework for analysis and joint action: outline and workplan for action research

The framework for fostering Rural Economic and Enterprise Development (REED) which is based on the analysis of successes and experiences of programmes and projects by an international group of practitioners from different professional backgrounds and countries is an example of a more holistic and spatial approach to local, rural and urban development. The framework, which tries to address the shortcomings of the traditional rural-urban dichotomy, is comprised of ten cornerstones for successful intervention, covering the policy and institutional dimension, access to infrastructure, services and markets, entrepreneurial competence and stakeholder links (see Figure 1). The REED framework can be applied at different levels, i.e., national and regional, because it is areabased. For example, many decisions concerning the political, economic and institutional environment for Rural Economic and Enterprise Development are made at national level. Decision-makers on public policies for rural areas are charged with designing strategies for rural development. Increasingly, this is done in a programmatic way, such as in inter-ministerial committees for designing PRSPs, sector investment programmes (SIPs) and sector-wide approaches (SWAPs). The REED framework adds value to the planning process because it feeds the perceptions, needs and experiences of relevant stakeholders in a systematic way. Where the focus is on developing a certain region (at sub-national level), regional development authorities can use the REED framework to create a dynamic environment for economic activity and to stimulate innovation. In this way, the specific characteristics of the region and the relevant framework conditions can be taken into consideration when elaborating and formulating key strategies, processes and possible ways to implement them, related to the individual cornerstones (see Figure 1). Within the cycle of typical government and donor-supported public investment, policies/ interventions, there are several options for applying the REED framework

Institutional approaches to the delivery of business development: A review of recent literature

This paper reviews the international experience of institutional approaches to the delivery of Business Development Services (BDS), by drawing on twenty case studies from Asia, Africa, Latin America and Western and Eastern Europe. It highlights the main strengths and weaknesses of a number of institutional arrangements, and identifies some general guidelines that seek to contribute towards improved national policies on enterprise development and BDS provision. The study is organised as follows: section 2 presents the emerging new paradigm in BDS philosophy; section 3 analyses three institutional BDS-delivery models: (1) the delivery of services through government agencies, i.e. government-driven approach; (2) the forging of partnerships between donors and national institutions; and (3) the promotion of independent BDS providers such as business centres, clusters and networks, and business incubators.; and section 4 offers some conclusions on emerging best practice for BDS development

The importance of being owned: microfinance institutions in Tanzania

Non-governmental organisations operating in Tanzania and seeking to transform themselves into regulated microfinance institutions are currently facing the difficult task of establishing who the owners of their organisations are – a crucial factor that is limiting their ability to secure transformation and hence to get access to further funding. As an integral part of the Leverhulme-funded research project “Optimising the Dual Goals of Microfinance” this briefing paper presents preliminary results of field research undertaken in Tanzania during August 2009.1 One of the major findings is that gaining access to equity capital is the primary concern of many of these organisations and hence identifying the best strategies to institute shareholding partnerships is paramount

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries: A systematic review

Farmers in most developing countries are mainly smallholders, with average farm size of 1-2 hectares. They tend to be constrained in investing in productivity-enhancing technologies because of limited household resources combined with lack of access to external finance on which they depend (Tadesse 2014). Smallholders often do not have access to credit provided by banks or special rural credit institutions. One of the constraints on such lending is the limited amount of collateral to securitize the repayment of the loan. This means that banks will have little recourse against defaulting borrowers. As a result, high-return economic cropping activities that typically require significant up-front investments (e.g. enhanced seeds and fertilizers) may be hampered by these credit constraints (Boucher et al., 2008). Provision of insurance can encourage higher supply of credit, both the implied demand for credit and supply thereof, and thus enhance agricultural inputs use. However, there is a lack of growth due to underdeveloped and imperfect markets for inputs, insurance and credit (Carter and Barrett, 2006; Cole et al., 2012) causing among others credit rationing. In the environment of underdeveloped and imperfect markets, a combined approach is needed (Alderman and Haque, 2007), as separate access to each of these is seriously restricted. More insight into the impact of linking insurance and credit is needed since there is limited information in the literature regarding the potential effect of bundling insurance and credit, for example on the extent to which insurance would reduce the cost of borrowing and make credit more accessible to the smallholder farmers (Tadesse et al., 2015). In this paper we review the most recent scientific literature on one specific form of insurance: index-insurance. As is well known; important advantages of index insurance are low administrative costs and the elimination of moral hazard. An important disadvantage is basis risk (see below). In this review paper we discuss the determinants of demand for index-insurance, the impact of index-insurance on smallholder livelihoods, and the existing links between index-insurance and credit. In this meta-analysis, we identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity. We focus on index-based insurance products since it offers a tentative potential for coping with losses in lower income countries (Skees, 2008)