Economics%20116%20-%20Lecture%2016%20-%20Final

Economics%20116%20-%20Lecture%2016%20-%20Final - Economics...

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Economics 116:  Economic Development UC San Diego, Spring 2009 Prof. Karthik Muralidharan Department of Economics Lecture 16
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Lecture Outline (5/21/09) Microfinance - Continued Savings - ROSCAs
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Microfinance Recap Two key ideas: Group lending Reduces transaction costs, increases loan size Group liability Poor don’t have financial collateral, but they have social collateral If a member of the group defaults, then all are liable – and they  cannot get another loan till the original one is repaid How does this work in practice Total default/inability to pay is not typical More common that a complete payment cannot be made The shortfall is made up for by borrowing from other members in  the group and then repaid back to them
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Microfinance Recap One of the most widespread movements in the  development world in the past 2 decades Has brought financial access to poor people  around the world The movement has shown that in spite of high  transaction costs and no collateral, it is possible to  lend profitably to low income households Programs typically have low default rates Potentially empowering for a lot of women But limited rigorous impact evaluation of the effect  of expanding credit access
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Two Main Research Questions What is the impact of expanding credit  access? So, assume that a bank or MFI already exists in  a location, but only makes loans to some  people We want to know what is the impact of  providing credit to people who were otherwise  denied What is the aggregate impact of an MFI  entering a new area?
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Importance of Randomized  Evaluations Several studies have been done on the  effect of microfinance loans on economic  outcomes But most of them suffer from selection bias: Who  chooses  to borrow?  Entrepreneurial spirit?   Resourceful individuals? Who do MFI’s agree to lend to?
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This note was uploaded on 05/06/2010 for the course ECON ECON 116 taught by Professor Muralidharan during the Spring '09 term at UCSD.

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Economics%20116%20-%20Lecture%2016%20-%20Final - Economics...

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