Topic: Microfinance
Author: Mayuresh Suryarao
CROWDFUNDING FOR MICROFINANCE INSTITUTIONS: THE NEW HOPE?
XUECHEN L. et al. This study examines crowdfunding’s impact on MFIs, finding that utilization of platforms like Kiva improves sustainability and reduces interest rates. Empirical validation and robustness checks confirm these findings. Interestingly, while financial expenses may slightly increase, operational efficiency improves, leading to decreased operational costs and more effective risk management. These improvements drive sustainability and interest rate reductions, indicating that crowdfunding’s benefits extend beyond mere capital cost reduction. Information disclosure and monitoring from the crowd and platform motivate MFIs to enhance performance, enabling them to offer lower interest rates while maintaining sustainability. Overall, the study highlights the multifaceted benefits of crowdfunding for MFIs and underscores its theoretical and practical significance.
Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence.
MIA, M. A. et al. (2022) The initiation of microfinance in the 1970s aimed to empower the poor economically. Despite its positive impact, microfinance institutions (MFIs) face challenges, notably client dropout. Retaining clients is crucial for revenue, performance, and social outreach. Factors like higher wages, mission alignment, and sustainable financing influence client turnover. Management must prioritize employee welfare and operational sustainability to mitigate turnover. Understanding these dynamics aids in policy formulation for MFIs. The study employs various modeling techniques to analyze these factors and offers insights for managerial and policy interventions
Learning From Failures in Microfinance: What Unsuccessful Cases Tell Us About How Group-Based Programs Work.
WOOLCOCK, M. J. (1999) The evolution of microfinance evaluation shifted from simplistic measures like loan repayment rates to assessing financial sustainability. Yaron’s subsidy-dependency index marked this shift, emphasizing independence from subsidies. However, a deeper analysis reveals the importance of “how” questions, considering resource mobilization and institutional factors. Evaluations have historically focused on impact, replication, and sustainability, but fail to address organizational challenges. A comprehensive approach considers both traditional metrics and the effective mobilization of human resources across key institutional junctures.
FUNDING FINANCIAL INCLUSION: INSTITUTIONAL LOGICS AND THE CONTEXTUAL CONTINGENCY OF FUNDING FOR MICROFINANCE ORGANIZATIONS
COBB, J. et al. (2016) Microfinance addresses exclusion from formal finance for the poor, yet its impact on poverty reduction extends beyond loans, benefiting from diverse services. Scholarly studies highlight positive outcomes, including absorbing unforeseen expenses, fostering small business growth, and empowering women economically. However, research on microfinance funders’ lending practices is limited, despite their crucial role in providing capital. Commercial funders prioritize financial returns, focusing on MFOs with low default risk, typically favoring larger, financially stable institutions. Their actions align with a financial logic, aiming for market or near-market returns to ensure investor confidence and sustainability.
MEASURING THE EQUILIBRIUM IMPACTS OF CREDIT: EVIDENCE FROM THE INDIAN MICROFINANCE CRISIS
BREZA, E. et al. (2021) This study examines the impact of a large-scale reduction in microfinance credit supply following the Andhra Pradesh crisis, utilizing district-level administrative and household-level data in India. By leveraging the differential exposure of microfinance lenders to the crisis, the research identifies causal effects on various economic indicators like consumption, entrepreneurship, wages, and employment. The findings reveal significant adverse effects on rural labor markets, including decreased daily wages and consumption. Both aggregate-demand and business liquidity channels contribute to the observed impacts. Importantly, the study contrasts with previous randomized controlled trials (RCTs) by analyzing a substantial shock at the district level and considering the removal, rather than the addition, of credit. This research contributes to understanding the broader equilibrium effects of credit contractions, particularly in rural economies, complementing existing literature on microfinance’s partial equilibrium impacts.
Profit-orientation and efficiency in microfinance industry: an application of stochastic frontier approach
BENSALEM, S. and ELLOUZE, A. (2019) This study examines the impact of commercialization on the efficiency of microfinance institutions (MFIs) using panel data from 162 MFIs across different regions. It finds that while commercialized MFIs achieve higher financial efficiency, they lag in social efficiency compared to non-profit MFIs, particularly in outreach to marginalized groups like women. Larger non-commercial MFIs perform better in both financial sustainability and outreach, while older profit-oriented MFIs show higher financial efficiency, possibly due to experience. Subsidized profit MFIs tend to be more socially efficient, contradicting some assumptions. Overall, the study suggests that commercialization improves sustainability but may compromise social goals, underscoring the need for alternative approaches like the Grameen model emphasizing savings and retained earnings to balance financial sustainability with social impact.
Sustainability of Indian Microfinance Institutions: Ratio Analysis Approach
KAR, S. (2020) The study on Indian MFIs reveals concerning financial indicators such as a negative trend in Capital Asset Ratio, indicating poor asset management. However, Gross Loan Portfolio to Total Asset ratio suggests potential for revenue generation. ROA and ROE portray inefficient utilization of assets and shareholder funds. Portfolio at risk and write-off rates indicate poor loan management practices. Despite these financial challenges, MFIs show limited outreach to the poor, reflected in the loan balance per borrower to GNI per capita ratio. However, there’s a positive trend in the percentage of female borrowers, indicating progress in gender inclusivity. Overall, the study concludes a trade-off between financial and social sustainability, with MFIs performing relatively better in social aspects.
Market Structure and Competition in the Indian Microfinance Sector
NAVIN, N. et al. (2019) Recent empirical investigation of the Indian microfinance market reveals a rise in concentration alongside decreased competition, resembling a monopolistic structure post-crisis. Despite high concentration, leading MFIs haven’t exploited market power for increased profits. The study suggests a correlation between decreased competitiveness and new regulations post-crisis, emphasizing the need for regulatory vigilance to maintain a healthy competitive environment. Policy implications include monitoring leading MFIs closely and adapting regulations to support smaller players crucial for microfinance’s core objectives. Preserving the distinction between microfinance and traditional banking is crucial to maintain its unique value proposition.
Do microfinance institutions benefit from integrating financial and nonfinancial services?
LENSINK, R. et al. (2018) This article investigates the impact of microfinance ‘plus’ services on MFIs’ financial and social performance. Unlike previous studies focusing on clients, this one examines providers. Despite using a global sample and various estimation methods, the study finds no significant impact of non-financial services on MFI performance. Evidence of improved loan quality and outreach is limited, with mixed findings regarding social service provision’s effects on portfolio risk and clientele. Overall, there’s no discernible performance gap between MFIs offering ‘plus’ services and those that don’t, providing valuable insights from the provider’s perspective.
Non-grant microfinance, incentives and efficiency
KARAIVANOV, A. (2018) This article presents a theoretical framework demonstrating that charging interest on funds provided to microlenders incentivizes increased effort in borrower monitoring or business assistance, enhancing repayment rates or reducing per-loan overhead costs. It contributes to the debate on the role of for-profit funding in microfinance, suggesting positive impacts on outreach, profitability, cost efficiency, and borrower welfare under certain conditions. While literature advocates for expanded for-profit funding to scale up microfinance, debates persist regarding its effect on interest rates and welfare. The article emphasizes MFI actions that raise repayment probabilities and discusses the integration of non-financial services with credit provision. Empirical evidence suggests success on average, though caution is advised due to potential selection bias. Future analysis could incorporate borrower and MFI heterogeneity for greater realism, while relaxing assumptions about MFI default could alter the incentivizing effect of fund prices.
Top of Form
MAYURESH S. (2024) The studies delve into various facets of microfinance, particularly focusing on the impact of crowdfunding, commercialization, and regulatory dynamics on the efficiency and sustainability of microfinance institutions (MFIs). Crowdfunding, exemplified by platforms like Kiva, is found to enhance MFI sustainability and reduce interest rates, driven by improved operational efficiency and risk management. However, challenges persist, including client dropout and financial indicators reflecting poor asset management in Indian MFIs. Commercialization, while boosting financial efficiency, may compromise social goals, highlighting the importance of alternative models like the Grameen approach. Regulatory changes post-crisis in India have led to increased market concentration, necessitating vigilant monitoring to preserve competition and support smaller players crucial for microfinance’s objectives. Additionally, investigations into ‘plus’ services offered by MFIs reveal limited impact on financial and social performance. A theoretical framework suggests positive impacts of for-profit funding on outreach and borrower welfare, though debates persist regarding its effect on interest rates and welfare. Overall, these studies underscore the complexity of microfinance dynamics, emphasizing the need for balanced approaches that consider both financial sustainability and social impact while navigating regulatory environments and evolving funding landscapes.
References
XUECHEN L. et al. Crowdfunding for Microfinance Institutions: The New Hope? MIS Quarterly, [s. l.], v. 46, n. 1, p. 373–400, 2022. DOI 10.25300/MISQ/2022/15406. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=796ce467-9c6b-339f-a88f-71e87f2a2167. Acesso em: 27 fev. 2024.
MIA, M. A. et al. Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence. Annals of Public & Cooperative Economics, [s. l.], v. 93, n. 1, p. 55–84, 2022. DOI 10.1111/apce.12325. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=903d5782-36aa-337c-a5cf-409178f4ebf0. Acesso em: 27 fev. 2024.
WOOLCOCK, M. J. Learning From Failures in Microfinance: What Unsuccessful Cases Tell Us About How Group-Based Programs Work. American Journal of Economics & Sociology, [s. l.], v. 58, n. 1, p. 17–42, 1999. DOI 10.1111/j.1536-7150.1999.tb03281.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=cf3da24d-8c88-38b2-9a65-c7a7ccc7184c. Acesso em: 27 fev. 2024.
COBB, J. et al. Funding Financial Inclusion: Institutional Logics and the Contextual Contingency of Funding for Microfinance Organizations. Academy of Management Journal, [s. l.], v. 59, n. 6, p. 2103–2131, 2016. DOI 10.5465/amj.2015.0715. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=06c3e171-43a1-3387-ab36-a0a08063d43c. Acesso em: 27 fev. 2024.
BREZA, E. et al. Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis. Quarterly Journal of Economics, [s. l.], v. 136, n. 3, p. 1447–1497, 2021. DOI 10.1093/qje/qjab016. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=4a15c908-90d1-320d-bfb3-a55932e48caf. Acesso em: 27 fev. 2024.
BENSALEM, S.; ELLOUZE, A. Profit-orientation and efficiency in microfinance industry: an application of stochastic frontier approach. INFOR, [s. l.], v. 57, n. 3, p. 411–429, 2019. DOI 10.1080/03155986.2017.1412123. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=d3cfa17e-9bf6-3983-b70b-d77e7f9d4d49. Acesso em: 27 fev. 2024.
KAR, S. Sustainability of Indian Microfinance Institutions: Ratio Analysis Approach. IUP Journal of Bank Management, [s. l.], v. 19, n. 2, p. 32–46, 2020. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=b8619075-9062-3a48-b1d2-42af4b01ce25. Acesso em: 27 fev. 2024.
NAVIN, N. et al. Market Structure and Competition in the Indian Microfinance Sector. Vikalpa: The Journal for Decision Makers, [s. l.], v. 44, n. 4, p. 167–181, 2019. DOI 10.1177/0256090919896641. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=7e80ca66-979b-3100-8f95-10cd81a54984. Acesso em: 27 fev. 2024.
LENSINK, R. et al. Do microfinance institutions benefit from integrating financial and nonfinancial services? Applied Economics, [s. l.], v. 50, n. 21, p. 2386–2401, 2018. DOI 10.1080/00036846.2017.1397852. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=cc890eb6-fca4-34e9-be7f-468fd9b8bda0. Acesso em: 27 fev. 2024.
KARAIVANOV, A. Non-grant microfinance, incentives and efficiency. Applied Economics, [s. l.], v. 50, n. 23, p. 2509–2524, 2018. DOI 10.1080/00036846.2017.1400655. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=eab44e94-a6fc-30be-a864-a6e6df996224. Acesso em: 27 fev. 2024.