Download Microcredit vs. Microsaving

Microcredit vs. Microsaving
Discussion
Xavier Gine, DECRG
Conference on Access to Finance, World Bank, March 15-16, 2007
Is Microfinance rhetoric
misleading?
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The story that MF advocates tell is that
MF helps build small businesses by
offering credit to households otherwise
denied formal credit.
Yet, survey data indicates that MF loans
are also used for household needs.
Is Microfinance rhetoric
misleading?

…so what?
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Fungibility
Credit is used for productive purposes but
also as an ex-post risk coping strategy to
smooth consumption (Eswaran and Kotwal,
1990)
All you need is… access
Is Microfinance rhetoric
misleading?

Clearer description of the KUPEDES loan
terms
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According to web page, there is a Working
Capital loan and a Fixed Asset loan, of
differing maturity and installment
frequencies.
Measuring Creditworthiness
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Are BRI borrowers more likely to be
deemed creditworthy?
Comparison of assessments for a given
borrower between credit officers with
whom there is a lending relationship
and others without prior relationship.
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How important is “soft” information?
Measuring Creditworthiness
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Measurement can be overly costly
(credit officers spent 1.5 hrs with each
respondent).
Solutions:
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Joint liability?
Test loan?
Aversion to Debt?
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Creditworthy households may fear loss
in utility associated to having to repay
in situations where consumption is most
valuable (Binswanger and Sillers, 1983;
Boucher et al. 2006).
The prevalence of aversion to debt is
related to the loan terms and the
provisions in case of default.
Aversion to Debt?
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Malawi pilot: Offer a standard debt
contract to a group of farmers, and a
contingent loan to a comparable group.
Take-up of the contingent loan was 15
percent lower. (32 vs 17)
Extra comments
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Interesting that prob of having a business is NOT
correlated with wealth, yet prob of borrowing is.
Should we be concerned with refusal to participate in
the survey?
How did enumerators introduce themselves?
Tab 2: How many HHs borrow from more than one
source? Do they link type of borrowing to type of
institution? Is this given by contract terms?
Tab 4: Sum and num of borrowers, are they
consistent?
Tab 6: Caveat about interpreting results