Group versus Individual Lending in Microfinance

Microfinance is typically associated with joint liability of group members. However, a large part of microfinance institutions rather offers individual instead of group loans. We analyze the incentive mechanisms in both individual and group contracts. Moreover, we show that microfinance institutions offer group loans when the loan size is rather large, refinancing costs are high, and competition between microfinance institutions is low. Otherwise, individual loans are offered. Interestingly, our analysis predicts that individual lending in microfinance will gain in importance in the future if microfinance institutions continue to get better access to capital markets and if competition further rises.

Impact of competition on microfinance beneficiaries: evidence from India

India has been implementing Microfinance programmes for the last three decades. The journey from Micro-Credit to Microfinance has been long. Presently formal financial institutions and government and non-government agencies are implementing microfinance programmes all over the country. However, it is found that there is no synergy among these organisations. They are not sharing information about their clientele among themselves. This paper makes an attempt to analyse the impact of an increase in competition among microfinance institutions on the decision of delaying the repayment by their clients

Microfinance, MSMEs and the Macro Economy: Evidence from India

Much of prior literature on the relationship between microfinance and the macro-economy has focused on the effect of the latter in determining the success of microfinance institutions (MFIs). However, the microfinance industry has been underserved in studies evaluating microfinance as a legitimate contributor toward macro-economic growth. Researching this connection would provide a clearer direction for policymakers to support microfinance, and the institutions that foster such activities. This paper investigates the hypothesis that microfinance is not only important to the people at the bottom of the socio-economic pyramid, but for the overall health of a national economy. We explore different mechanisms as to how microfinance could affect the macro-economy, and simultaneously enable the growth of micro, small and medium enterprises (MSMEs), and evaluate the possibility of such scenarios

Group versus Individual Lending in Microfinance

Microfinance is typically associated with joint liability of group members. However, a large part of microfinance institutions rather offers individual instead of group loans. We analyze the incentive mechanisms in both individual and group contracts. Moreover, we show that microfinance institutions offer group loans when the loan size is rather large, refinancing costs are high, and competition between microfinance institutions is low. Otherwise, individual loans are offered. Interestingly, our analysis predicts that individual lending in microfinance will gain in importance in the future if microfinance institutions continue to get better access to capital markets and if competition further rises

Lending to Agribusinesses in Zambia

Microfinance has been celebrated in the last decade as a new paradigm shift in lending that has achieved immense success in improving the living standards of the poor through the provision of financial services. Institutions involved in microfinance around the world have used innovative loan contract mechanisms to profitably lend to the poor and achieve very high repayment rates while allowing the borrowers to profit and grow their enterprises. While high repayment rates have been realized by microfinance institutions focused on lending to consumers and to retail-type micro enterprises, few microfinance institutions focused on lending to agricultural producers have achieved comparable success. This article compares the mechanisms employed by major microfinance institutions with a successful lending institution in Zambia that serves agricultural businesses. Findings are: ZATAC uses progressive lending and group lending contracts adapted in some ways to suit seasonal agricultural production credit requirements. The institution also uses various forms of collateral substitutes like other microfinance institutions. We also find that ZATAC uses other mechanisms such as automatic loan repayments tied to production, cooperative sanctions, contracted production and provision of business development services that eventually improve loan repayments significantly and enable the lender to lower interest rates.Agribusiness,

A framework for regulating microfinance institutions : the experience in Ghana and the Philippines

An earlier Policy Research Working Paper (Hennie van Greuning, Joselito Gallardo, and Bikki Randhawa,"A Framework for Regulating Microfinance Institutions,"WPS 2061, February 1999) presented a regulatory framework that identifies thresholds in financial intermediation activities that trigger a requirement for a microfinance institution to satisfy external or mandatory guidelines-a tiered approach to regulation and prudential supervision. The model focuses on risk-taking activities of microfinance institutions that must be managed and prudentially regulated. The author reports on the results of the field testing and assessment of the tiered approach, focusing on the experience of Ghana and the Philippines. The two countries both have a wide range of informal, semi-formal, and formal institutions providing financial services to the poor, but differ in how they regulate financial intermediation activities by microfinance providers. In his assessment and a comparative analysis, the author focuses on key issues in the regulatory and supervisory environment for microfinance-and in the legal system and judicial processes-being addressed by government authorities and microfinance stakeholders in both countries. He gives particular attention to the thresholds at which intermediation activities become subject to prudential regulation and regulatory standards for capitalization and capital adequacy, asset quality and provisioning for nonperforming loans, and liquidity management. seeks to identify the key elements and characteristics of the microfinance regulatory experience of Ghana and the Philippines and to draw the lessons that may be useful for other countries interested in establishing a regulatory environmentconducive to the development of sustainable microfinance institutions. The experience of Ghana and the Philippines shows that a transparent, inclusive regulatory framework is indispensable for enabling microfinance institutions to maintain market specialization and to pursue institutional development that leads to sustainability. Clear pathways for institutional transformation facilitate the integration of microfinance institutions into the formal financial system.Payment Systems&Infrastructure,Banks&Banking Reform,Rural Finance,Financial Intermediation,Decentralization,Banks&Banking Reform,Rural Finance,Financial Intermediation,Governance Indicators,Poverty Assessment

The scope for policy reforms in rural microfinance

This brief considers the scope for policy action in seven areas: (1) regulation of microfinance institutions, (2) provision of saving services, (3) product innovation, (4) organizational issues in microfinance, (5) poverty impact of microfinance, (6) agricultural finance, and (7) subsidy and sustainability issues.Microfinance Evaluation. ,Agriculture Finance. ,Subsidies. ,Sustainability. ,Poverty alleviation. ,Financial institutions Management. ,Financial institutions Regulation. ,New products Finance. ,Savings and investment Developing countries. ,

The weight of institutions on women's capabilities

The objective of this paper is to assess the links between institutions and quality of life, within Nussbaum's capability framework approach, exploring a relevant empirical issue: microfinance. Microfinance appears more and more as a tool for women's empowerment. Available results of impact studies call for circumspection; microfinance can free women from certain links of dependence. But microfinance can also forge new kinds of dependence and subordination, thereby strengthening the disparities between men and women, but also among women themselves.microfinance, capabilities, institutions, Martha Nussbaum, Amartya Sen, women, empowerment

Microfinance tradeoffs : regulation, competition, and financing

This paper describes important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, the authors find a basic tension between meeting social goals and maximizing financial performance. For example, non-profit microfinance institutions make far smaller loans on average and serve more women as a fraction of customers than do commercialized microfinance banks, but their costs per dollar lent are also much higher. Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices - and thus embracing and weighing tradeoffs carefully.Access to Finance,Debt Markets,Banks&Banking Reform,Emerging Markets,Rural Finance

The Problems of Correlation in the Financial Risk Management – the Contribution of Microfinance

In this paper we first introduce microfinance institutions as an alternative investment instrument. We argue that beside socially responsible features of microfinance, there exists also significant portfolio enhancement opportunity in microfinance investments. Then we provide an overview of possible ways how to evaluate the correlation between microfinance related financial instruments and conventional financial market measures of risk and return.Microfinance; Investment; Funds