An_overview - An Overview of Recent DeveloPments in the...

Info iconThis preview shows pages 1–19. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 10
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 12
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 14
Background image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 16
Background image of page 17

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 18
Background image of page 19
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: An Overview of Recent DeveloPments in the Microfinance Literature Valentino M. i-iortnrslro and Martin Hotonami Abstract T1115 paper presents an overview of ink-refinance and mlcroflnance research. The objective is to show that ntteroflnance research has come full E‘ll'cle.‘ from policies to lending methodologies and to organizations In the IEIBDs. and back to a focus on policies. Specifically. t'lfl’filflpmea‘ils tn the. flimrelical literature: on asymmetric. information. transaction costs. contracts. and banking identify the challenges that MFls must overcome. Recent trends toward liitcrmedlation and commercialization have brought about renewed focus on identifying appropriate policies to promote a viable mlcrollnance industry. The paper concludes by describing some current challenges faced by the induso-y and offers a possible research agenda for agricultural economists. Key words: flnanela] Institutions. nucroflnanee. mlct‘oflnancc institutions. poverty. turn] llnonce Valentina l-‘l. l-larlarslta Is an assistant professor In the llllpilrlmtnt DI'WUNUI'EI Economics and Rural atclolomr. Auburn University: Marlin Hollnuinn la a lead flnaIICI-fil spet'lallst Will] the Consulloliva Group ltl Aasiol the Poor tiff-AP} :II Ilrtr world Bank. Washington. lhfl. limit-w coordinated by (Zr-turn t}. Turvev. Development of financial institutions boosts economic growth and benefits the poor more than other segments or the population [King and Levine. 1993: Beck. Demirguc-ltunt. and tonne. 2004]. Worldwide. niieroi‘inance institutions [it'lFIs] expand the frontier of finance by providing loans and other financial services to the under-served poor. Mtcrollnanco has attracted significant attention lately. especially after the. Untted Nations designated 2005 as the International Year of l'ttlicrocredlt.I Mitre-finance started as "a collection of banking practices built around pretendingr small loans [typically without collateral] and accepting tlnjr savings deposits" Lamendariz de raglan and Morduoh. 2005. p. 1]. Today. tnany MFIs offer payment and savings [aeilitiea insurance. housing. and longer-term loans. Microflnance programs seek to reduce poverty by promoting salt—employment and entrepreneurship as well as by alleviating liquidity constraints and contributing to consumption and Income-smoothing. Microflnance programs pursue the double bottom-line objective of outreach [serving the poor] and self—sustainabilityr [cost coverage].2 The majority.r of l'vl'F'la still rely on traditional multilateral and bilateral donors for funds. However. nev-r private foundations. such as the Blll and Melinda ' ermfinanee Is a phenomenon typically associated wlth the dart-looting countries. but it has also attracted support lTI developed countries. In the United firatca. lit infliction. support 1rd to the revival of Community Development Financial Institutions in the leads. "Keller and Meyer 12002] Include impact as me third element 1n the "triangle" of niiorotlnance. consisting of EInancIaI Sustaimbillty. o‘utrrsm. and unpact. 145 An Duet-mete ofRecent Deteiopmcnts tn the Micmfitmce Lite-nature Table 1. Growth of Hieroflnsncc Clients Since 1997 Number of Total Number of ‘ii: Reporting Number "Poorest" ‘ of Date Institutions of Elite Clients Pm flimts 12K?- 1 It 100'? I313 13.4?B.?07 1000.000 56 12.011 .t'l 090- 925 203435.899 12.221.913- 53 mill-131999 I .Ofifi 21555.559 I 3,779.3?2 EB 123’313'2000 1.55? 30.531.107 19.32TJ51 fill- 12f31 Him I 2.186 54.932.23.15 23.3?3332 49 12f31f2002 2.572 HIE-06.030 41,534.??3 HE 123’313'2003 2.931 30.358343 54.?85.433 03 123'3 i room 3.164 92.2?0389 63.614.8Ti T2 Somme The State nfrhe Micrmmdit Summit anpntgn REM 2005 [Daley-Horde. 20-05]. “The "poorest" clients are defined as those lit-iris on under US$1 a day. Gates Foundation and the. Iieil Foundation. play an increasinglyr active role as both donors and investors. In addition. large private banks such as Cl’l‘lBANH and HSBC have entered what was formerly a niche market [Wall Street Joumoi. Elitiitill.3 These [quasi-l commercial investors may fund large international Inicrof'inance networks leg" ACCIDN International. FINCA. Opportunity International]. individual MFIs. or may adopt a "greenfieldinrf approach and create new.r micro and sirlail enterprise banks [Schmidt and Zeitinger. 2001!. Mieoiinance dates back to the IQTUs. when economics professor Dr. Muhammad Yunus. began making small loans to lgroups from local villages In Bangladesh. This effort resulted in the establishment of the lGrarneen Bani: in 19% as an experimental project to combat rural poverty by prodding credit. to the very poor. Edy 2005. the. Gramccn Honk disbursed about 0505 billion in loans to 5 million borrowers. son of them women. Microflnancc l'ios groom significantly on all continents. Data from the State oj'the Microcrai'lit Summit Campaign Report 2005 [Daley-Harris. 24305]. which traces the. 1'l7"1'.tl" .1 i'inI‘iI'II i-t-LLI‘I'I'}? Ill “11'. will: LII Irtirrrmijuruil fillimieh‘iill hanks. see Consultative Group to desist ll‘l'l." I‘Dor ICCihP. EUUEEII. number and poverty level of microfinanee clients around the world. illustrates the scale and growth of the lntllifil'i'y [T able 1]. The number of clients has grow from 13.5 million in 199? to 92.3 million in 2W4. The number of poorest clients [those living on less than $1 a day] has also grown. train 16 million in 199? to nearly 6'? million in 2004. it is also tjmaied that there are at least 10.000 microfinance programs. worldwide. li-‘Iicroflnance emerged as an innovation in lending to the rural poor in Asia. where previous interventions in rural financial markets [directed and subsidized production credit usually disbursed by agricultural deceloprne'nt banks} often failed. These interventions were extensively studied by agricultural economists. The global microflnsnce movement diil‘ers from rural financial market interventions because financial services are weaved independently and are not llrileed to [agricultural] production. Thus. mlcroflnonce has expanded to include the urban poor and now encompasses financial markets for marginslired clientele in rural and non-rural settings. its a consequence. it has been studied less by agricultural economists. Academic research also reflects changes in policy initiatives and Lhcir funding. although in the past 40 years billions of dollars were spent to support the Green sync-ultimo! Finance Review. Fall 2005 HMEtt'Skfl and Hotrmrrnn I49 Revolution. recently there has been a shift of funding away from agricultural projects. For example. agriculture accounted for 31% ot 1World Bank lending In 19?9—1981. but by RUDD—2001 it. had fallen to ICE-tn [Christen and Pearce. 2005}. This decrease in lending for strictly agricultural protects was due In part to an increase in support for reform and the strengthening of overall financial markets. A similar shift of funding has occurred in the inter— ninerican Development Bank. the European Bank for Remneruclion and Development. the African Development Bank. and the Asian Development Flank.“ This paper presents an overview of microflnanee and mieroflnanee research {Including research on rural mieroiinancel. and identifies some directions in which the industryT is heading.“ We seelt to show that mlerol'lnartee research has come full circle: from policies in lending methodologies and to organizations In the 19905 [Gmaiez- lregs. 1994]. and back to a locus on policies. Specifically. developments in the theoretical literature on asymmetric information. transaction costs. contracts. and banking identify the challenges that MFts must overcome. Recent trends toward intennedtation and commercialization have " For example. “rfnl'lt‘r [2002] shows that lending rn agriculture by lite inter-emoticon Development Berti: t't'll Iron: $1.6 billion In 19313—1990 to no lending in 199 i—IEHJE. while financial mrnr restructuring rose front 34 till million in [BEE—19W to $2.9 billion in IBB l— lEI'EIIfi. Sunllsrly, flttstneLng by IltL' European Bank for Rernnstroctioo and [Malawian-en: to t-ounu-les llt I'luslr'ril Europe tuid CeriLral Asia [ens region] for ltnsncial sector development and micro and small enterprise financing ontuuotetl to about $9 billion by EDGE. During the some period. funding I'ur agribusiness projects. at which. a very ntttull poi-tint: goes to ngriculturul production. amounted lo 33 billion. In ZIJUE. title ol'ihe Milan [Jet-skipntent Bank linuucirni,I was slimmed for agriculture and 5% was designated 1'or1lle financial sector development. A lmrtllnt of lllis hunk lentilng [$510 rnilllonl was swell‘hmlly designated to mtcroflnsnee. and the tilujbrlty ul' microflnsncc lending in Asia Is. in rural areas. The Mnean Ekatelnprnent Hank's lending [or agricultural and t'Ltr-il development was 15% and financial sector lending was lfl'ltt. “Comprehenle surveys oi recent developments of the Ilteraiore are: fu'rttendsrlz de Million and Mordueh WHO-5]: Canning and Unit]! {forthcoming}; Beau and Weller IEDO‘H'. see also Keller and Meyer [2M2]. brought about renewed focus on identifying appropriate policies to promote a viable mtcrolinance industry. The remainder of the paper is orgamned as i'otlows. First. we briefly describe the main challenges In lending that are identified in the theoretical literature and show how Irmovalions in lending leg. group Ioansl can alleviate Information asymmetry problems and improve the provision of financial sendces to marginalized clientele. This is followed by a discussion of some organizational dilemmas laced by microflnanee institutions. Issues related to the external environment in which MFIs operate are then highlighted. Next are sections providing a brief oven'iew oi'the state of tnierollnance Impact studies. and a summary of new developments in rural rnicrollnance. The. concluding section Identifies current challenges in the industry and suggests topics for future research of interest to agricultural economists. Some Theoretical Underpinnings of Morofinanee Methodologies Donor and government intervention ltt rural credit markets in the 19605 and lflms encountered significant problems. and this experience contributed to mltiai skepticism about mlcrottnance. For example. Adams and von Pisth t1992] emacluded that rrdctroflnance is 'de'ja vu" In part because they equate It to tmtcrolcredit. While the first microfinanoe programs pmdded credit-only tthus microcreditl. charging market-based interest rates In an attempt to become free of subsidy. microlinsnce has since evolved toward Intermediation with MFIS introducing savings products as well as more sophisticated llnaneiai products te.g.. microinsurance. home pttrchase loansl and services [various types of payment facilities]. at the other extreme are opinions that are too enthusiastic about microfinance. and mispercepllons that microfinanec has a clear social impact on all borrowers {addressed here In the section on impact 150 An (heroism oJ'Recent Deaetopments in the MIL-refinance Lita-attire studies]. or that most mierofinance programs- could both serve the poor and turn a profit. titti‘lnendaris dc lighten and Moiduch. 20051. The original group-based mlcrolending and other innovative lending practices developed parallel to. or even In advance ol‘. the theoretical literature on asymmetric information and the microeconomics of banking and eorporate finance t5tiglits. 2M]. Without development of the theory. however. our understanding of these new practices 1would have been incomplete and superficial. Ftir misrnple. when Dr. Yunus began making small loans to groups of local villagers in Bangladesh in ihe lama. it was to take advantage of economies of scale. t-Iowm’er. as time progressed. it became clear that there were many other advantages to this lending practice. and. the new theoretlcal models helped explain the mechanisms behind the success. It Is now acceptor] that underdevelopnient of financial markets is due to market failures rooted in poor Information. high transaction costs. anti diflicuiites tmt'orelng property rights. This section presents the basic models of adverse selection and moral hazard [ex post and ex ante} and identifies the challenges posed by information asymmetries on financial contracts as well as how the first mlcroflnance innovatlon— group lending—helps improve on roosting market outcomes? Adverse Selection In the standard model of adverse selection. there are two types of borrowers: "safe" and "risky." The sale borrower can Invest $1 and get H with probability I. while the risky borrower can get E {Qa- E] with a pit-inability p. where D c p c 1. Assume that p‘t—ta y. and that the lender must cover its cost lrby setting its gross interest R (principal and interestl equal to k. The borrower keeps IE — it}. Under "'i'his schon presents simplified examples of asymmetric lui'on'rIa-tlon models sumimrued In Arnienrlartr. do Fight-on and Murdoch [2005]. asymmetric Infon'oatioo. the bank does not know the proportion ofsafe borrowers o. and will set. Its gross Interest. rate [3...] equal to k R -__.___._ io+il —ql*pl m =k+A<R. Slight: and Weiss {1981] show that in equilibrium credit may be rationed because if the interest rate is higher than 9. only risky borrowers would want to boFrow at the higher Interest rate and sale borrowers would cost the market [adverse selection]. The Implication Is that there Is a need for policies winch promote transparency and decrease asymmetric infomiaiion. It can be shown that with ajoinl—Iiabillly loan {group loans]. the adverse selection problem is mitigated. Under a group—loan scheme. each borrower obtains a loan. but all In the group lace consequences if a member encounters repayment difficulties. Thus. under a group contract. we can have assortatlye matching of safe with safe. and risky wtih nsky borrowers [Ghatak. 1999}. Assuming each risky borrower can earn income Q's-2R5} [R9 is gross interest under group loans}. the bank will face (sate. safe] pair with probability q and (risky. risky] pair with probability [1 - 1;]. Therefore. the population probability of success is g=1-[l-p]2and =4: iq-ii alto] Rn I'II" since 9' :- p. Thus. the lender can attract the safe types back into the market. Even under random matching of Individuals within a group [such as FINCPL groups in the Andes. where groups are formed randomly iKarIan. sooail. group loans can resolve the adverse selection problem by making risky borrowers cross—subsidise safe types. since the higher returns of risky bon'owers can cover losses of both safe and risky partners [Amendariz dc tighten and Gollier. zoom} 7 Other notable adverse selection models “with jlziirtt-liabillt}r conirucls are provided by Ghatak [1999. 20001. Agnhritttiroi Finance Review. Fall 2065 Horrorsim and Holmionn 151 Moral Hazard In the typical ex ante moral hazard problem. the principal cannot observe the agent after the agent takes a loan. so the principal [lender] would like to offer a contract that induces effort from a borrower. Assume an investment project taltes $1. a. non-sitirking borrower will generate revenue y with certainty. while a shirklng borrower will generate g with probability p and zero with [l - pi. A borrower's decision is determined by his or her incentive compatibility [1C] constraint. {y - Hamil] 13:55:49 _ RumilL Where antt is the principal and interest. and c is a borrower's cost of working. This implies that the interest which can be extracted is defined by its y [c.e'tl —p]}. Stigiitz [19“le demonstrates that under a group tending contract. the lender can do better. in a two-person group. if both put in effort. both will Incur the. cost of effort. Tire _1oint return with effort is {fly 23mm} file. but If both shirk. they will repay their joint-liability loan [fly ERgmrtli] only p2 fractions of the time. If one is lucky and the other is not. the lucky individual is responsible for the full payrnenl. and there is no surplus: the group's to is {so 2%,1— see pitay - 2 ..t and amps y — cm — p2]. Since-t1 p l: 1 - p. under ex ante moral itaaard. the group gross Interest is smaJIEr than the gross interest without a group {Hgmldl 23' Rmrtlrl' Under the ex post moral hazard problem. the major concern is that after the. outcome is realized a borrower may refuse to repay and the lender cannot. discern if the default is strategic or not [Towns-end. 19TH]. In the absence of peer monitoring. m'eryone will default strategically and the bank will never lend. 'lhis problem under group contracts has been the subject of considerable research [Besiey and Coats. lQQE: Miiendariz dc Agl'ljon. 1999]. A group loan can force the borrowers to incur tex post} costs of monitoring or to find out the actual outcome of a prujeei. it group members incur m. they can observe the actual outcome with probability q. and if d is the social sanction imposed on a borrower who tries to avoid repayment. then repayment will be chosen if y — Rm... :- y - ptd + Rama]. The gross interest is then Rm”... e loftl - ofld. In the absence of peer monitoring. the chance of obsming actual revenue is o = D. and there is no lending. To minimize the probability of suffering Joint liability. monitoring will occur under small at e qy. Group-based financial services are not entirely new or used only in microflnanoe. Historically. models such as credit cooperatives [credit unions]. farm credit and insurance mutuals. and other mechanisms such as Rotating Savings and Cradit Associations tRDECAS] eidsted in rural and low—income areas.” Advances in the modeling of asymmetric information problems also help better explain tinanelal services provision via credit coopmaums iBaneflee. Besley. and Guinnane. [9941. Similarly. the mechanism of RDSCAS. whereby members pool resources by contributing a small amount each period and take turns to use the common pot of money to meet their credit needs. has also been explored [Besiey Coats. and Loury. 1993i. Mlnroflnance is not only about. group- ioans. hmvever. in fact. researchers and practitioners agree that many successful Individual microfinance schemes rely on other mechanisms of screening. monitoring. and contract eritorcemcnts such as dynamic h1centives. or mochanttin'is incorporating elements explained by the literature on tnultl- period and repeated contracts. limited communism. and reputation.“ These may be more cost-effective in countries without dense rural populations such as those in the Eastern Europe and Central Asia region or Latin America [Armedarlz tie lighten and Morduch. 200m. " Ghatait and Gulttnane HESS] provide an excellent twen'tew {If Itirlztup-iiaserl practices. 5' Cmoing and Udry [forthcoman prmridc a recent mien-law. 152 An Overview ofReectttDeoclopments in theltiicrofinonce Literature —______________________ There is a perception that microcredit products are well defined and that loan officers react quickly to repayment difficulties. but actual contracts are more state-contingent than generally believed [for example. a lender could agree to let a borrower miss a couple of payments. or forgive a portion]. suggesting incomplete market outcomes llldry. 1994.- Town-tsentl. 20133]. The literature on nuilti-perlod sovereign debt. as well as l-lolrnstrom's sutlleient statistics tying up investment outcomes to agent‘s effort and the environment. suggests an explanation for these "anomalles" to accepted practices :[Grossman and Van Huyck. 1938: Holmstrom. 1979i. When financial markets are incomplete. limited commitment is a serious problem. Reputation—updating mechanisms Under mulli-perlod moral hazard produce results different from the. one—shot moral hazard [InmbcrL 1933]. Mold-period moral hazard outcomes improve on single—period outcomes only if there is an exclusive relationship between a borrower and a lender and they pro—commit not to renegotiate contracts lFelltngham. Newman. and Sun. 1935}. In practice. this may depend on the existence of competitors in the local market. 'ihus. research tot-using on the role of competition among MFls is becoming important. especially as case studies front many countries [e.g.. Bolivia] reveal that competition affects local microflnance markets. This raises the question of whether competition should or should not be promoted. The Case for Intel-mediation agricultural economists. and the Cthio State Rural Finance Program in particular. discovered rural credit programs were often inadequate because of the incorrect asstitttptlons that the poor do not need sat-flog facilities or noncredit financial products [Bounties-Vega. 1994}. Unlike previous credit-only interventions in rural credit markets. many MFIs today provide savings facilities because they identified a need among the target population. Moreover. some of the most successful MFls. such as the Unit Desa System of Bank Rakyat Indonesia and Equity Bank In Kenya. owe much of their growth to extremely effective savings mobilization. The result. is a trend toward cortmerciotizatton where an NGD MFl grows. achieves scale. and transforms Into a commercial financial Institution. usually with a license to collect deposits. Larger MFis move toward financial inten'nedlation and. in addition to saving. provide payment facilities and more sophisticated financial products such as housing loans and microinsurance. These developments highlight the need to focus on the role of ivIFis nation the financial system of a country. The literature on the mtcreoonomics of banking has long made. the case for delegated monitoring via specialized financial institutions [Diamond 1934]. Theory also suggests that deposit collection presumes regulations {PW-euros and Rochet. 199?]. However. recent cross- country studies provide evidence of over-regulauon and argue for market-based disciplining mechanisms for financial interrnediarles [Bard-t. Caprio. and Levine. 2004}. The Validity of these arguments for microfinanee is unclear since the nonprofit literature and some microilnance studies suggest the focus on outreach and impact weakens the cast: for market competition as a disciplining mechanism {McIntosh and Wydiclt. 2005]. Moreover. examples from countries with competitive markets [such as Bolivia} indicate that too much competition can lead to over—indebtedness and hurt the sector. lComtnerctaiisatlon and intermediation introduce a new set of issues needing to be addressed by academics and policy makers. (in the one side are those who believe that mtcroflnance is not unique and that it conforms to other challenges of financial sector detelopnient [Honohan. 2004]. On the other side is a renmved attempt. to refocus microilnanee toward Impact and outreach. For example. Microeredit Summit II pushed for Agricultural Pinonne Reuters. Foil Eflflfi' Horton-sits and Hfllbl'tflnfl 153 refocusing on the very poor—those who live on less than US$I a day [adjusted for purchasing power parity}. The US. Agency for International Development [US$113] now alrns to have at least half of its microenterprise funds benefit the very poor.In Issues Within Mieroflnance Institutions Well—run mlcroi'tnancc. Institutions make better use of scarce funds by providing better financial services and reaching more poor clients. The main conclusion from the theoretical literature on asymmetric Information and contracts is that incentives matter. Incentives within the MFI have also attracted the attention of both researchers and praclitioners. For exantpie. Chaves and Gonzalez-Vega “996] explain the successful outreach and sustainability of mral financial lntermediatlon systems in indonesta in terrrts of organizational design. The use of perihrmance—based compensation to improve stall performance has gained popularity. As it turns out. however. devising successful performance- based htcenttve schemes is a complicated task. The challenges of creating optimal incentives arise from the fact that microflnance staff perform multiple tasks. in a mttiti—taslt cnviromnent. high—powered incentives—where a larger portion ofthe employee compensation is based on performance—may be counterproductive because the efforts to achieve various goals [outreach and sustainability] may be complements or may be substitutes ll-iolmstrom and Milgrom. 199]]. This Is consistent with the experience at PRDDEM which. in 1993. introduced '" USN!) works on developing new tools to measure poverty. and Imll soon require that institutions n-celvtng ritlcrocniertn'lse aid use these tools and report the number of clients who live on less than US$] 3 day. The result is a decrease in funding by LTEMD. and this Initiative is subflect to much. discussion. programs with highapowered Incentives designed to reward achievements of individual loan officers. There was improvement in financial indicators. but there was also high turnover of loan officers and many cases of corruption which undermined the organisational culture. In 1995. Incentives were modified by conditioning rewards upon the success of a team. Even these schemes were. dropped. howchr. because dili'crent branches rectdved different rewards. This reward system created tensions. as employees were unable to distinguish between results due to hard work at a branch or simply luck [Bazoberry. Eflflll]. Lower-powered incentives have enjoyed greater success. as demonstrated by Procredit Banks fI-loltmann. Emil: Holtmann and Grantmling. 21005]. While MFls experimented with performance-based compensation for loan officers. top MFI managers usually did not receive performance—based bonuses ti-Iohmann. 2003]. The role of management has attracted attention. especially the governance aspect of senior managers and board interaction [Cantplon. 1998]. One challenge of the governance In MFIs is that managers who are agents are supervised by donors who are also agents Wat-tan. 1990]. Traditional governance practices are more effective In prith [commercial] mlcroflnance banks where the emphasis on financial results is more. pronounced. Another challenge emerges front the multi- task environment in which MFls operate. It can be sltmut that because leFI managers perform multiple lflSlrEfi- and the board has diverse preferences for outreach and sustainability. managers would reveal more infonnation to their supervisory boards than ifthe managers were focusing on a single task [Hartarska. 2002]. Empirical results also confirm that l'v'lFl board size and composition affect ivl'F'is' outreach and sustainability iHarbtrska. 2005}. To promote good governance practices. large networks such as ACCIGN lntematlonai have developed various tools. Nevertheless. our understanding of what works and what does not In MF‘I 154 Art Otcmiew ojReoent Developments In the Mtcrofinonce Literature governance remains largely incomplete {Roch Utero. and Saltzman. 1993]. Efficiency of HFIs Numerous case studies focus on the performance and efficiency of a single MFI or a group of Mite operating in one countr},r or in similar markets. The role of subsidies has been subject to eiaenstve research [Morduch. 1999}. Although these sttltlies provide invaluable Information on innovation In technology and organizational design. mdusIry-widc and cross—country.r studies have the potential to offer more policynrelevani insights. Cross—country studies can control for Important variables that capture MFl-specifle characteristics. as well as macroeconomic factors and Institutional factors such as security of propertyr tights. etc. Empirical work on the relative efficiency of MFIs is scarce. largely because of significant data limitations. lliompelition for donor funds and the entrance of private Investors into microltnance. however. have brought increased transparency which has. in turn. Ierl to increased availability of data. Data such as performance ratios averaged by I:[eographic region and target market compiled by the Mtcrohmttctng Bulletin [Miifli and the hime are novtr available onltne tat mvw.mixrnarltet.org]_ These ratios are. widely used as "benchmarks." but have their limitations. These limitations are confirmed by Gutierrez—Nieto. Serrano—Cinca. and Mar- Mollnerti {2004] who report that MFI performance rankings based on MEG ratios differ from rankings produced by nonparametric IDEA] efficiency analysis. These newly available data help identify factors associated with successful lvtFls. For example. in their study of profitability and outreach of leading mlcroflnance institutions. Morduch. Dcmirguc—Kunt. and Cull {2005] conclude that differences In institutional design and orientation matter. Specifically. MFis which focus on lending to individuals invest heavily in stalt in order to protect their portfolios. but muse 1whose emphasis is on group lending do not. Sonilarly. Hartsrslts. lCaudill. and Cropper {2006] assert that MFIs' orientation matters. Applying a cost-emciency approach. they establish that when output of Ms in the Eco region is measured as the number of loans. MFts become more efficient over time. and MFIs involved in the provision of group loans and loans to women have lower costs. However. when output is measured as the total volume of loans. the opposite is true. Estimating a mixture of cost functions. Caudill. Groppcr. and Hartarslta [2005] observe that there are two types of litFIs in the EDA region. with about half of the MFIS becoming more productive and about half becoming less productive over time. A higher subsidy per loan anti a smaller size loan are found to be associated with decreasing productivity over time. while MFIs registered as banks are associated with increasing productivity over time. The Environment minus] spending on mlcroilnance ls substantial and amounts to between US$BDD million and Si .5 billion. More recently. MF‘ts have turned to capital markets to raise funds. Fundraising efforts include local bond issues {Compartamos in Mexico. Mibanoo. Peru]. international debt issues [Deutche Bani-t lvlicroercdit Development Fund. Global Commercial Microflnancc Consortium. Global Parlncrship Microflnance Notes]. and equity Funds {ACCION investment. 01 Balkan Fund. ProFundi.“ The increase in spending on microfinsncc has prompted donors and investors to look for effective mechanisms of control to ensure MFls achieve their objectives. Studies have shown that MFI success “ See "Who Will Eloy Our Wiper? l'n-iittroilnonce Cracklnc Capital Markets‘ [.I'tCCIUN International. scoot. Agnrttiturnl F‘tt'a'otee Resists. Fall 2005 Hormrslt'tt and HDli'l't'lflJ't-I'l 155 depends on the existence ofan enabling environment [Guevas 199-5: Hartarska. forthcoming. 2003]. Thus. there is a renewed interest in designing optimal policies to promote a healthy mlcroflnance sector. identifying the proper role. of govemments is among the most important and challenging tasks facing MFIs. In the past. government-led development banlts more subject to price [interest rate} and quantity [targeted credit] controls. The main policy goals tvere redistribution of Income in favor of small producers. promotion of technology adoption. and elimination of moneylcndcrs who charge 'pi'etlatory“ interest rates. Research by the Ohio State Rural Finance Program shovved that the use of credit to address these social objectives has failed and may have undermined the development of rural financial markets [Adams et. al.. 1984]. For example. interest rate ceilings designed to improve access to credit for small farmers resulted in tuisallocnilon of resources. termed by Gonzalez-vega [1994] “the iron law of interest. rates ceilings.' To cover their fixed costs [screening moratorlng. and contract eniorcementl. hanks lent to rich farmers who already had access to loans from unsubsidiserl sources. fits a result. poorer farmers were. worse off because many rich fanncrs defaulted on their subsidized loans. and banks therefore had even less loanablc funds [Gonzalez—Vega. 19W]. Today. the debate again centers on how microlinance should be integrated 1.vlthin the country‘s financial systeen—tvhethta' it should be regulated and subsidised andfor should be. commercialized or should 1'err only on market-based mechanisms of control [shareholder control. microfinanec rating agencies. credit bureaus. etc.}. 1lulfl'lile Ll'te asynuneiric infomatlon liiorature identifies government's role In financial markets as one of promoting transparency and etu'orcing contracts. the microeoonomics of banking literature also suggests that irttennodlaiion requires regulations to prevent negative externalitles such as. bank runs {Diamond and Dybvig. I933]- Moreovcr. when deposits are collected. and because depositors are small. dispersed. uninformed. and cannot effectively monitor managers or exercise control rights. a regulator could better represent depositors' interests and act on their behalf. The regulator's role is to differentiate the conditions under which equity holders would remain In control from those where they would lose control. usually through sohrency regulations [Dewau'lponl and Tlrolc. 1994]. This principle is difficult to Implement in microfinance because many MFls do not. use traditional collateral to secure their loans. At present. MFIs remain remarkably diverse. l'dFIs can be unregulated or regulated. registered as nongovernmental organisations [NGGs]. private. banks. or as nonbanlt financial institutions. The main argument for regulation has been that. In most cases. regulation enables an MFI to attract deposits [Campton and White. 1999]. Depending on the types of funds MFls use [whether donations. or private investment and deposits]. none or some level of [prudential] regulation has been recommended [Chaves and Gonzalez-Vega. [994: Hardy. Holden. and Prokopenlto. 2003}. The. costs of designing and enforcing regulatory policies to address the specific challenges of mtcroflnancc are substantial. For example. supervision of MFls In Ghana was costly relative to their asset base [Steel and Andah. 2066]. However. the benefits of regulation in some Latin American countries have exceeded the costs [Theodore and Trigo. 2002]. Practitioners worry about the Impact of regulation on the povertyr alleviation mission fDichtcr. 1995']. Regulatory involvement may lead to a “mission drift“ if demands to fulfill regulatory requirements divert. attention away from Serving the poor ie.g.. by shifting the focus from serving poor clients to serving wealthier borrowers to improve capital adequacy ratios] and may hold back Innovation in lending tect'tnologjyr which has been the. driving 156 An thermionic ofHecent Develoan in the Microfi‘tmtce Literature force behind MFls‘ ability to expand outreach and serve poor clients. As shown by summary statistics reported by hitcmbardrinp Bulletin No.10 [online at meniixmoborg]. regulated MFIs serve wealthier borrowers. Barth. Caprio. and Levine t2tlfl4l conclude that too much regulation can negatively affect bank performance. in a similar cross—country study. Hartarsita and Nadclnyalt {iii-UT] report that regulatory status and regulatory power of the supervisory body have no impact on MFI performance. However. better outreach [measured as number of borrowers. not savers} is associated Twith higher levels of earrings. suggesting an indirect effect of regulation on outreach. An alternative to regulation is to relyr more. on a morkelnbaserl mechanlsm of external governance tHariarsIta. torthcoming 2008]. As an example. rating by commercial credit rating agencies and the emergence of microi‘inanee rating agencies in recent years Indicate that microflnancc has reached a certain level of maturity [Tim Economist. 2005a}. Donors have also embraced rating and. to support the rating of MFIS. in EDDI CGAP established a special fund with the purpose of subsidizing rating of MFls [see hitpn"fwwmatlngfundnrgl. Mieroflnanoe rating agencies are expected to generate independent information. which can improve efficient resource allocation. Homer. microilnance rating agencies have little competition. and since most have both consultmg and rating operations. they are. rigged with conflict-of- interest problems t'IheEcononttst. 2005b]. llartarslta [2004} notes that not all tnleroflnance rating agencies produce the same results andfor help MRS raise external funds. The role of competition In microfinance is still unclear. especially because MFls have an outreach mission and many operate as NGDs. according to findings reported by Besley and Ghatak [2004]. the nonprofit status reinforces mission credibility. and managers perform better in organizations With large endowments as they are less likely to bc thread to adjust their mission to attract donations. Thus. competition among mission—driyen organizations improves eflietency because it improves matching between donors and managers. However. McIntosh and Wydiek {20-05} show that competition among nonprofit lenders exacerbates asymmetric information pmblems over borrower indebtedness and causes more borrowers to seek additional debt. thereby creating a negative extezl'nality that leads to worse equilibrium loan contracts for all borrowers. in a follow-up empirical paper. McIntosh. de Jenny. and Sadoulet [2005i report that in Uganda. entrance of competitors Induced a decline in loan repayment and led to the. exit of larger borrowers. Impact Studies Continuous support for microflnance programs depends on demonstrated results such :15 Improved socioeconomic outcomes [e.g.. income. schooling. etc.i. Although anecdotal evidence on how access to credit improves client lives across the world is abundant. the impact story is not yet 1leery clear. Early studies. found that microflnance has a positive impact by demonstrating better outcomes for program participants than for nonyrarticlp-anis.L2 A valid Impact assessment study. however. shotdd isolate pure credit impact. from nonrandom program placement [the choice to open an Mt‘l in one village but not in anotherl and nonrandom program participation [the effect associated with the decision to participate. presumably made by more. entrepreneurial clients}. The next wave of impact studies either used quasi-experiments to evaluate impact (Coleman. 1999} or more sophisticated econometrics techniques to address '” See Pitt and ifl'uandker titted] For a review oi'cariy studies. Agricultural Finance Rectcui. F all 2005 Hortomlm and Holmium to? selectivity issues [Pitt and Khandker. 1998}. in general. these studies documented a positive impact of microfinance programs. Still. results are often sensitive to the metliodolofl employed. and the saute data could produce inconsistent results [Pitt and Khandker. 1998'. Khandlter. 2003i. impact studies also highlight who uses credit and why. A. key finding is that the very poor use credit not for productive purposes but to smooth consumption and alleviate their liquidity constraints [Hulme and Mosley. 1997‘}. Since academic studies have a significant tune lag between data collection and publication at" results. practitioners have developed their own impact assessment tools. such as the USMD-supported assessing the impact of lviicroenterprtse Smlces {AIMS-l methodology which includes panel data collection and better impact measurement techniques [http:flww.usaldrrdcrocrgfpubsfalmsflfa Some studics have raised questions about these techniques. For example. when Alexander [coon used AIMS data from Peru but applied a different identification approach. she found much smaller impact than the results produced by the AIMS study. Impact studies typically focus on uluating the impact of a single MFI. usually at the request of donors who want to know whether to discontinue support for a specific MFI lZohir and Matin. 2004}. Hartarslta and Nadolnyal-t {2006] focus. instead. on the collective impact of all itiF‘Is in Bosnia. They define the role of mtcrolinanee not In affecting nonilnanctal variables. but in alleviating financing constraints. Their results show that investment by entrepreneurs living in municipalities with MFls depends less on internally available cash flows than does Investment by entrepreneurs who live in m in some cases. practitloners partner with academic t‘leparlnlents to develop evaluation tools [are ImPat‘i project run by Sussex University. onllru'. at iittpu‘fwww.tnip-act.orgi. municipalities without MFIs. Such an approach takes into account the fact that. In some regions. there may be too much competition. {the relationship bettvcen investment and numberrsize ol' MF‘ls in the municipality may be nonlinear]. but. their paper does not find evidence oi‘ovcr- indebtedness in Bosnia. Rural womflnanoe Froflsion of financial services remains a challenge outside densely populated rural areas. "traditional rural ilnance targeted producers. The philosophy was that there was a need to change agricultural technologies to feed expanding urban populations. and thus targeted loans must be offered to tarpand agricultural production [Yaron and Benjamin. cocci. Rural mlcroilnanoe. in contrast. takes advantage of what previous financial Interventions neglected—nonfami rural activities. scale efficiency. and savings mobilization—as well as of Improved knowledge of rural households behavior. In traditional rural finance. for Example. credit was extended for a specific purpose [usually the purchase of inputs to produce a specific crop]. while In mlcrofinance the loan repayment generally is not linked to loan use. [lie—linking loan use from the outcome of a specific productive use of capital emphasizes that the loan is not a grant. and has to be repaid.” Moreover. the mleroilnance industry does not consider Its lending practices as agricultural finance. in part because money fiinglbility is now well understood. and MFIs do not collect information on how households spend the money il.c.. personal or productive use]: they only collect information on sources of cash flow in order to match repayment dates [Christen and Pearce. 2005].” HThis practice works best for staple crops or Livestock pm-duced your Ini'ycar out. that do rtul mqulrfl Ion bulk.- Investment. “At Least. part of micmflnance loans go to agricultural aniltdty. especially In attain. udierc most of group rnlcrnloans an inward agricultural activity. 153 An Domains offlecertt lleueiopmenis in the Mlcrejt'nance Literature _—_——_‘—*_—_*__—__ Household studies find that poor households save and have multiple income sources and financing needs (Adams. lGraham. and von P'Ischlte. 1984]. Taking advantage of Iield observations. [PC Internationale Projth Consult—a consulting company specializing In lending to low—income households—promoted lending based on evaluation of the cash flows ol' the household. in particular. savings and income diversification permit borrotvers to comply with a weekly loan repayment schedule that relies on dynamic incentives and monitoring to improve loan repayment. For eimmple. Fmsnciera Caipia in El Salvador perfected such lending In urban settings and titan successiuliy adapted it to rural lending [Navajas and Gonzalez—Vega. EDDGI. In rural settings. MFIs adjust loan terms and conditions to accommodate cyclical cash flows and bulky investment and introduce HBlelfi payment options. such as the three-stage loan disbursement and repayment offered by Conflanm. Peru [Christen and Pearce. ZDDEl. Such Iendlng permits loans to be used for productive purposes or consumption-smoothing which may be more important to poorer households ll—lulme. and Mosley. 1991?]. Portfolio diversification is important i'or rural financial intermediaries {Yaron and Benjamin. 2002}. Lending to clients with dtversiiled income and cash flows decreases lender losses. although it may also restrict the pool of potential borrowers. For example. Cal-a Los Hides and PDRDEM in Bolivia do not usuallyr lend to undiversiflcd rural borrowers who grow only one or two crops. Another way to address agriculture-specific risk typically used by credit unions and specialized rural banks is to limit afiicultural lending to less than 25% of their portfolios [Christen and Pearce. 2005]. Technology plays an important role in rural areas. Christen and Pearce [2005} argue that rural MFls “piggyback on existing infrastructure" and exploit. technological innovations to develop alternative delivery mechanisms. The authors note that. instead of building expmsive branch infrastmcture. MFls share local institutions' utfrastmcntre— service centers. schools. rural bani-ts. or intermediaries [such as Constanca in Georgia. which rents teller service centers from rural banks]. and retail shops [qu Nuu Ndavi in Meidoo. 1.vhich collects hulk remittances from city banks and for a fee rcdistrihutes them via its own rural branches. and the World Council of Credit Unions. which sends remittances from LLS. to local credit unions in Latin America]. Other examples cited by Christen and Pearce Include mobile banking via specially equipped vehicles with an effective Management Information System EMS]. solar—poivered computers successfully used in Kenya and in Vietnam. multi-languagc ATIIrls with fingerprint reading capability. smart cards and debit cards that substitute for traditional branch Infrastructure usEd by PRODEM to Bolivia. and A‘l'ltis in rural Equador linked directly to savings accounts in Spain and Italy to access remittances. PI‘Jt‘is and cell phone technology are also used to provide instant access to MIE and criminal information systems and afford instant loan approval and monitoring. Numerous additional experiments are carried out across the world. These include incorporating agricultural contractual arrangements {contract fanning] in loan and savings products [by MFls In India. Pakistan. and In Eastern and Southern Africa}. introducing leasing services. offering area- based [weather-based] risk insurance {'I‘anzanial. incorporating other insurance products in the loan product [life Insurance in Bosnia]. and cooperation with membership-based ti'onnal or informal] organisations. Pcrhaps the most important factor for the success of rural microflnance is that it is isolated from politlcally medicated interventions (Adams. Graham. and von Pischke. [934: Yaron. Bcnlamin. and Ptprek. 1997]. With iniemtediation in Apriculniroi Finance Rout-etc. Fall 2006 Hot-twain: and Holrrrrnnn 159 rural areas taking oft. the role of the government should continue to be developing a legal and regulatory framework. and securing property rights. In addition. its role should include providing a stable macroeconomic environment. promoting public investmcnts in rural areas. and remaining biases against agnculiure [Yaron and Benjamin. 2002]. Microfinanoe Outlook and Possible Research Agenda Mitroiinance has made great strides In terms of achieving scale. improving productivity and efliclency. increasing outreach. and pursuing sustainability and positive impact on the intended target clients. This is perhaps why microflnance is currently one of the most prominent poverty alleviation tools. Total funding of the industry by 'iradllional" donors remains a nontrivial quantity: It is estimated that annual spending on microfinance Is between [1538»th million and $1.5 billion. 31— and multilateral agencies account [or the bulk of quasi—commercial Investment in niicroflnance organizations through equity. guarantees. and quasi-commercial debt [CIGAR flmbbl. In some respects. microilnance is an excellent {and rather rare] Example of the benefits of better don or coordination. Under Ihc leadership of the Consultative Group to Assisit the Poor ICGAP]. a multinational mici'oflnancc resource center housed in the World Bank. loading donor agencies have subscribed to a canon of “donor guidelines“ defining the current State of knowledge on donor practices in niicroflnance. no a result. many leading donor agencies have undergone peer reviews of their microfinanec portfolios and activities and have made adjustments to their practices. The most recent examples are significant changes to the funding practices ofthe United Nations Dwelopment Frograrrune and the credit lines of the World Bank [CGI'LH 2006b]. Lack of funding does not appear to be a bottleneck holding up the development of the industry. Indeed. the current picture Is more accurately described as one of too many investors chasing too few investment opportunities. which sometimes may have adverse effects. For example. the increasing supply oi" funds by foreign investors has led many MFls to accept unhedged foreign exchange exposures iCGhP. 2006a]. Notwithstanding such risks. mtcroilnance will continue to integrate into local and International capital markets. The major bottleneck in microflnance is still inadequate retail capacity. In terms or size and sustainability. there Is a bipolar distribution in the microfinance industry. More than Brill-t} of the leading MFIs report. in the Mieroflnance information Exchange iMlX. ontine at Whlimnarketprg]. Even in this. to date. most comprehensive database. the l451eadtng MFIS malts up approximately this of the clients in microfinanee. but there are thousands of small and unsustainable programs. "transparency and adherence to International financial accounting standards remain a challenge. Much remains to be done in order to create the critical mass necessaiy to establish truly global reporting standards. 'I'here is also an expEctation among industry practitioners that just as environmental reporting has become widespread among big Industrial corporations. social Impact reporting will be accepted by many MFIs. Another tiiiitculty for mlcrofinance is the result of too mUch attention by developing muntries' gwmnments who have increased their spending on microi'lnance. This trend creates new challenges for the Industry. especially when "Hanks for the Poor" in the Middle East and North Africa region and government—sponsored agricultural lending schemes in Cenb-ai Asia use subsidized lending rates. because these initiatives may crowd out for-profit MFIs. 1B0 An Overview oft-'tcoent Developments in the Microfinorrce Literature The prominence of mlcroiinance today may lead to a backlash once taxpayers and the general public realize that mterofinance is not a universal tool for dealing with all the challenges of development. For example. microfinance will most certainly not solve the problem of generating employment. for the hundreds of millions of youth who will be entering the labor force during the next decade l[in the MENA region alone. it is estimated that the labor force will increase by tilt} million people over the next 20 yearst Mierofinance Is no substitute for investments in infrastructure. education. and other basic services. Whfie top-tier MFIs around the world demonstrate sustainability. and even strong profitability. the recent political backlash against high interest rates and aggressive loan collection practices {e.g.. by Andra Fradcsh in india] points to future challenges. in addition. the industry will continue to grapple with other ltlndatnental qucsllons. such as the proper use of subsidies. the role oi” the private versus the public sector in the provision of mirroflnance. and the role of government. Most largeiscale mtcroflnancc is produced In urban and densely populated rural markets. The provision of rural and agricultural finance in large countries and areas with lower population densities [imagine Southern Sudan] 1tvlth significant outreach and In a sustainable manner is a largely unsolvcd problem. The advent of new delivery technologies. such as point- of—sale. terminals and cell—phone based banking. may help to change the production function or rural microflnanee and thus provide the necessary "push" for making finance accessible for the rural poor. These rnierolinance trends suggest a potential focus of future. research on public versus private provision of microfinance and the role of goverru'rtent [perhaps to explain the bipolar distribution of MF'Isi. and better ways to measure rnicrolinance impact. Cine oonsequence of recent developments in the microfinance literature Is that research has gradually moved away from agricultural economics departments where the emphasis remains on agricultural and production finance. and is now more common in economics {and Been in finance] programs where financial markets for marginalized low-income [rural and urban] populations are viewed as a part of the development of a financial system. To maintain their place in microfinance research. agricultural economists should continue the best traditions of field work that focuses on understanding the complexities of rural households. their cash flows. financing needs. and surplus funds. as well as understantfilnrt,r what products MFls offer to meet these needs and cover their costs. Adopting a broader view of the rural economy to include nonagricultural activities and using the advances in asymmetric lnforrnalion theory. financial economics. entrepreneurship. mieroecononfies of banking and financial Intcnnedlation. and experimental economics would permit provision of financial services which will also benefit agricultural production act—it'ities. Recently available data could be used to clarify important issues that could affect the direction of rnicrolinarroe. For example. economies of scope in provision of deposits and loans are yet to be estimated for various environments. Similarly. it is Important to establish If there are scope. economies in providing financial and nontlnanclai services. agricultural economists may want to study how efficient rural MFls are. if and when there are cost advantages to serving both rural and urban markets. Answers to these questions would determine in what countries [regions] or under what circumstances financial markets for marginalized rural clientele must he studied separately. and ullimately the scope of work needing the attention of agricultural economists. Agnculiurot Finance Review. Fall 2008 Harinrskn and l {climatan 161 ——_————— References aecron intcmatlonai. "who Will Bu}.r Our Paper"? Microflnmtce Cracking Capital Markets.“ ACCIDN Insight Note No. 15. Washington. DC. April 2000. Cnline. Available at wwwacctonprg. Adams. I}. W.. fin-H. Graham. and J. D. van Fischke. eds. Under-mtng Rural Demiopmcnt with Cheap Credit. pp. 1-7. Wash-low Special Studies in Social. Political. and Economic. Development Series. Boulder. CO. and London: West'vtew Press. [984. Adams. 0. W" and J. 0. von Fischke. “Micro-enterprise Credit Programs: Dela U11." World Damion. 20.10t1902]: l 4?i}- 1480. Alexander. B. "Essays on the Dynamics of Microfinance." Unpub. P'h.D. diss.. Dept. of Apr. and Resour. Econ. University of Maryland. College Park. 2001. Armendarla dc Aghion. B. "On the Design of a Credit Agreement with Poor Monitoring.” J. Develop. Econ. fiDllEiQEi]: “FE—104. Annmdaflr. dc. Aghion. E... and C. Collier. “Peer Group Formation in an Adverse Sclection Model.” Economic J. 110. no. 465 lfiflflfllfiflfl—G‘lfl. Amendariz dc ngluon. B.. and J. Murdoch. 'Microflnnnce Beyond Group Lendingf Ecmtorrulcs qui-ansitton EIECHJmH-fl 1-420. . Mutmconorntcs ofMicrofliumco Cambridge. Evin: Ml‘l‘ Press. 2005. Hanerjee. A. 1.3.. T. EI-csley. and T. W. Guinnnne. 'Thy Neighbor's Kecpcn‘: The [rte-sign of a Credit Cooperative wth Thoorg,r and a Test.“ thfi. J. Econ. 109.2[1994h491—515. Barth. J. R.. G. Caprio. and R. Levine. 'Eianlr. Regulation and Supervision: What Works Best?“ 0'. Financial lntemtcdiarion 13(20041205—243. Baaoherry. E. “We Aren't Selling 1vacuum Cleaners: PRDDEM‘s Experience with Staff Incontives.‘ Microbonktnp Brahms no. 6 [2001]. Unline. Available at Wniixmhbprg. Beck. T.. n. Demlrguc—Kont. and R. Levine. 'Pinsnce. Inequality. and Poverty: Cross- Country Evidenocf Working paper. the World Bank. Washington. DC. 2004. Hosiery. T.. and S. Coats. *Gronp Lending. Repayment Incentives. and Social Collateral." .J. Doeelop. Econ =15. I t 1905]: 1—18. Eeslev. T.. S. Coate. and C. Loury. “The Economies of Rotating Savings and Credit Associauonsf Amer. Econ Rec. ESHQBSJ:?SZ-Slfl. Heslev. T.. and M. Ghatak. "Competition and Incentives with Motivated Agents." CEPR Discussion Papers. No. 4041. Center for Economic Policy Research. Stanford University. Stanford. CA. 2004. Bran. J.. and G. Wollcr. “Miemfinanee: A Comprehensive Review of the Existing Literature.” J. Entrepreneurial Firms and Business IVentures 9i2004]:]-2IS. Csrnpion. a. "Current Gmmance Practices of Microflnance Institutions." Occasional Paper No. 3. the Microflnance Newark. Washington. DC. 1998. Carnpion. a... and V. Wists. "Institutional Metamorphosis: Transformation of Mieroflnance NGDs into Regulated Financial Institutions." Occasional Paper No. 4. the lvficroflnance Network. Washington. DC. 1099. Caudill. 5.. D. Groppcr. and V. [-Iartarska. “are There Two Types of MF‘is in ECA Countries? Working paper. Dept. of Agr. Econ. and Rural Sociol.. Auburn Universllv. 2000. Chaves. R.. and C. Gonzalez—Vega. "Principles of Regulation and Prudential Supervision and Their Relevance for Miementerprlse Finance Drgarflzations.“ 162 An Otafrtrtmo of Recent Developmema tn the Microfinnnoe {imminre —————_.——_—_ In The New World ofMteroei-tterprtse Ftrmrtce: Budding Healthy Financial Instittdionsfor the Poor. ed.. M. Dtero. Bloorru‘ield. CT: Kumarian Press. [994. . 'The Design of Successful Rural Financial Intermediaries: Evidence from Indonesia .' World Develop. 24. “1956]: 55—?8. Christen. R. P.. and D. Pearce. "l'r'lanaging Risks and Designing Products for Agricultural Mlcroflnance: Features of an Emerging Model.“ Occasional Paper No. 1 l . lConsultative Group to Assist the Poor. the World Bank. Waslnngton. DC. 2005. Coleman. 1-]. “The Impact of Group Lending in Northeast Thailand." J. Develop. Econ. Bfl[19991:105—142. Cunning. J.. and C. Llfli'jt. "Rural Financial Markets in Developing Countnes." In Handbook offigriettltw’fll Economics. Vol. 3. Chap. 15. Amsterdam: North—ltolland [forthcoming]. Consultative Group to Assist the Poor. "Guiding Prinelpleis on Regulation and Supervision oflvllcroflnanee Institutions.‘ Microi‘inanee Consensus Guldelinea. CGAP. the World Bank. Washington. DC. Eflflfla. . "Is Mierol'inance an Effective Strategy.r to Achieve the Mlllenniuni Development Goals?“ CGAP Focus Note No. 24. the World Bank. Washington. DC. 20031]. . "Commercial Banks and Mieroflnance‘. Evolving Models of Suecesa.‘ CGAP Focus Note No. 28. the World Bank. Washlngton. DC. Eflflfia. . "The Market for Foretgtn Investment in Mteroltnanee: Opportunities and Challenges." CGAF Focus Note No. 311 the World Bank. Washington. DC. 2mm}. _ "Foreipgi Exchange Risk in Microfinance: Wqu Is It and How Can It Be Managed?“ CGAP. Focus Note. No. 31. the World Bank. Washington. DC. 2006a. . 'Ald Effeetiveneee In Mleroflnance: Evaluating Mleroeredlt Projects of the World Bank and the Ltnlted Nations Development Programme." (SOAP Focus Note No. 35. the World Bank. Washlngton. DC. soose. Cuevas. C. “Enabllng Environment and Microfinanoe Institutions; Lessons from Latln America." .J. Internet. Develop. BliElBElflQS—QGQ. Daley-Hanis. E. The Suite ofthe Mieroeredit Sttin'unlt Canton ton Repeat 2005. hflcroCredit Summit Canipalgn. Washington. DC. QUUE. Dewatripont. M.. and J. T'lrole. The Pmdenttal Regulation oij'ilcs. Cambridge. MA: MIT Press. 1994. Diamond. D. 'Financial intermediation and Delegated Monitoflng.“ Rev. Eeon. Stud. 51llQfl4]:393-4l4. Blames-id. D.. and P. 13ng. “Bank Runs. Deposit Insurance. and quuldiity." J. Halli. Econ EiltlQBSMDl—ai 19. Dlehter. T. W. “App-easing the Gods of Sustainability: The Future of lntematlmial NGDs in Mtcroflnsnce.’ In NGGs. Suites. and Donors: Too Close for Covnfov‘t? sets. I]. Hulnie and M. Edwards. New York: Palgrave- Macmillan. 199?. The Eoonomtst [stall]. “Speclal Report: Who Rates the Raters?—Credit-Rating agencies: Credit-Rating Agencies.‘ The Economist 3T4. no. 8419 [25 March EDDBaifl l. —. 'Sun'evol'Mieroflnance 21305.” The Eeonmdsl 3??. no. 8451 [5 November 2005b]:l—l6. 32. Felling‘ham. d. C.. D. P. Nemnan. and Y. S. Suh. “Contracts Without Memory in Multtperiod Age-nay Models." J. Econ Weary 37.2{ 1 9851340655. Agricultural F‘tn once Review. Foil 2006 Horiorsko and Hotononn 163 Freixns. PL. and .I. Reel-let. Microeconomics oj'Bwttclng. Cambridge. MA: MIT Profits. l997. Gltatok. M. “Group lending. Local Information. and Peer Selection.“ J. Deuelop. Econ. 60.1[l999]:2?—-50. -. “Screening by the Company You Keep: Joint liability Lending and the Peer Selection Effect." Economic J. 1 it]. no. 465 l2llflfll:Eifli—ESI. Ghatait. M.. and T. W. Gttinnane. “The Economics of Lending with Joint Liability: A Review of Theory and Practice." J. Develop. Econ. EOJilQ‘QQ]: 195—223. Gamma-Vega. C. “Interest Rate Restrictions and Income Distribution.“ Amer. J. Apr. Econ. 59l19?fl:‘3?3—B?€1. . 'Stages in the Eh'olulion of Thought on Rural Finance: A Vision from the Ohio State University.” Economics and Sociology Occasional Papers. No. 2134. the Ohio State University. Columbus. 1994. Grotesnistt. l-]. l.. and J. E. Van Huyek. "Sovereign Debt as a Qontli'igont Claim: Excusahle Default. Repudiatiorn. and Reputation." Amer. Ermt. Ree. lfiBllQBBJ: IDES—lug? Gutierrez‘Nieto. E... C. Serrano-Chico. and C. Mar—Molinero. “Mieroflnsnce Institutions and Efficiency.“ Discussion Papers in Acoounting and Finance. No. tiFflwl-Efl. University of Southampton. Southampton. UK. 2004. Hardy. D.. F'. Holden. and If. Prokopenko. "Microflnance Institutions and Publie Policy.“ J. Policy Reform EIZGEIBI: 14'?-158. Harlot-ska. V. "three Essays on Financial Benders [or the Poor.“ Unpub. F'h.D. diss. Dept. of AER. Environ. and Develop. Econ.. the ohm State University. EDDQ. . 'Rsting in Microtlnsnce.“ Working paper. Dept. of Agr. Econ. and Rural 30:21:11.. Auburn University. 2064. ———. “Governance and Pol-formanee of Miei-ofinance Organizations In Central and Eastern Europe and the Newly Independent States.‘ Wot-id Demtop. SBEZODE}: 1627-1543. . “Do Audit. Rating. and Regulation Discipline lttieroflnance Institutions?” Manager-tot Finance [forthcoming 2003.1. Hartsrska. V” S. Caudill. and D. Dropper. “Productivity of MFls In ECPI Region." Working paper. Dept. of Agr. Econ. and Rural Sociol.. Auburn University. 2006. Harlarska. it. and D. Nadolnyuit. "An Impact Analysis or Microtinance in Bosnia and Herzegovina." Working paper. Dept. of Agr. Eeon. and Rural Social. Auburn University. 2006. . "Do Regulated Microfinence Institu Lions Aehloye Better finstainalsilit}r and Outreach? Cross-Country Etddenee.“ Appl. Econ 39(200fl11-16. Holmstrom. B. “Moral Hazard and Dbsewability.“ BellJ. Econ. lfl.lflfl?9]: T4—Ei 1. Holmstrorn. E.. and P. Miigrorn. 'Multjtask Principal-Agent. Analyses: Itmentive Contracts. Asset Worship. and Job Design.“ J. Low. Econ. nnd Organization 7[1991]:24—5 1. Holt-menu. M. "Designing Financial Inoenliyes to Increase Loan Officer Productivity: Handle with Core!“ Miami:nt Bulletin [April 2001]:5—1C|-. . "Stai'flncenttye Schemes: A Toolkit for MFI Managers.” MicroSave nfnoa. Nairobi. Kenya. 2003. Hoitrnsnn. M.. anti M. Grammllng. “Financisi incentive Schemes for Stsfl Engaged In Savings Mobilization." In Savings Seances for the floor. ed.. M. Hireehiantl. pp. 349669. Bloomfield. CT: Kutnsrisn Press. 2005. 164 Pin Doemteu: ofReceni Developments in the Microfiriwtce Liteomire —-———-————————__..______._________ Honohan. P. 'Financial Sector Policy.r for the Poor." Working Paper No. 43. the 1ilforld Bank. Washington. DC. 2.004. [-luiinc. 1].. and P. Mosley. "Firisnee for the Four or the Poorest? Financial Innovation. Poverty. and Vulnerability." in Wit-Toads Credi'lPPoven‘y and Finance in Emiglodeslt. eds. G. Wood and I. Sharii‘. London: Zed Books: and Dhaka.- University Press. Ltd. 199?. Harlan. D. “Social Capital and Group Banking.‘ Draft. nianu.. Princeton University. 2003. Kliandker. S. "Microflriance and Poverty: Evidence Using Panel Data from Bangladesh.“ Policy Res. Working Paper No. 2945. the World Bank. Washington. DC. Januar).r 20-03. King. it. and R. levine. “Finance. Entrepreneurship. and Growth: Theory and Evidence.“ J. Monetary Econ. 32.3i I 993:5 I 3-542. Lambert. it. it. “Long-Term Contracts and Moral I—Laaard." Belt J. Econ. l4i|983]: 441-452. McIntosh. (3.. a. de Jame-5r. and E. Sadoulet._ "How Rising Competition Among Mieroiinance Institutions Afl'ecto inciunbeni Lenders." Economic J. I I5. no. 595 [EDflfiligfiT-lflfld. McIntosh. C.. and B. Wydick. “Competition and Microfinance." J. Deteiop. Econ. Pglflflflfiltfl? 1—298. The Mtcrobantt'i’tlg Bulletin. Various issues. Dnline. Available at weavmixrnbberg. Murdoch. J. 'The Role of Subsidies in Microfinance." J. Domino. Econ. sot [9991:229—24fi. Morduch. J.. A. Demtrguc-Knni. and ll. Cull. 'F‘inanciai Performance and Outreach: a Global Mialysis of Leading Mlcrohanks.“ Polio}r Paper No. WPSSSET’. the World Bank. Washington. DC. 2005. Navajas. 5.. and C. Gonzalez-Vega. "Innovative approaches to Rural Lending: Financiera Calpia in El Sedvador.“ Economics and Sociologr Occasional Paper No. 25?1. Ohio State University. Columbus. soot). Pitt. M.. and S. lflisndker. “The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Maiter?‘ J. Feta. Econ. lfl6.5ilBQEl:QES-—QQE. Rock. R. M. Gtero. and S. Sensation. ‘Prinelples and Practices of Microtlnance Gmmauoe.‘ ACCIDN International. Washington. DC. 1998. Schmidt. It. i-i.. and C.-P. Eeliinger. "Building New Development Finance Institutions Instead of Remodeling Existing Dnes.‘ Small Business Dene-top. 12.212242113113243. Steel. W.. and D. Andah. "Rural and Micro Finance Regulation in Ghana: implications for Development and Performance of the industryr Africa Region.“ Working Paper Series No. 4‘3. the World Bani-t. Washington. DC. EGGS. Siiglitz. J. E. "Peer Monitoring and Credit Markets." Worm Bonk EoorL Ree. 4.3[199mflfil—366. . “information and the Change in the Paradigm In Economics.“ Attier. Econ. Rev. 92.3[2fl02]:4ED—50 l . Siigljtz. .i. E.. and a. Weiss. “Credit Markets in Credit with imperfect Information.‘ Antler. Econ. Rev. ritlsotl:393—41o. Theodore. L.. and J. Trigo. 'The Experience of Microflnance Institutions with Supervision: Perspectives from Practitioners and a Supervisor." In The Conanerctoiizotion of Mtcrofmrre: Balancing Etiisoiess and Deoeiopnierit. eds. D. Drake and E. Rhyiie. pp. 246-263. Bloomfield. CT: Kumarian Press. 2602. Agrtcntmrot Momma Route-w. Fall 2006 Hortorsko and Holmtntot 165 Townsend. R. M. 'Optinta] Contracts and Competitive Markets with Costly State 1verification." J. Econ. Theory 21.2{19?Q]: 265—293. _ "Microeretiit and Mechanism lkslgfin." J. Euro. Econ. Assoc. I. no. 2—3 [EDDBIAEMTI Liary. C. “Risk and hisuranee to a Rural Credit Market: An Empirical Investigation in Northern Nigeria." Rev. Econ. Stud. 61.3[1994]:495~526_ Vat-tan. i-I. Ft. “Monitoring Ages-its with Other Agents." J. Insttnrtional and Theoret‘itnl Etan 145.1l199G]: 153—174. Wall Street Joumnt laJ-tit'lesj. “Invisible Hand: Entrepreneur Gets Big Banks to Back Very Emall Loans": “Merolendlng- for-Profit Effort in India Draws Business from Cittgroup. HEEC": "Ms. Dobhala‘s Bab}? Buffalo.“ Wall Street Journal no May awoke]. Wermer. M. D. “Lessons Learned in Rural Finance: The Experience of the inter- Arnorican Development Bank.‘ Technical Papers Series. Sustainable Development Dept.. inter-American Development Hank. Washington. DC. ZDDZ. Yaron. J.. and M. P. Benjamin. .lr. 'Recent Developments in Rural Financial Markets." In The Warth of Microfinmm: Financial Sustamnotltty. Outreach. and lowest. eds.. M. Zeller and R. L. Meyer. op.l52—1'?I. Baltimore and tendon: Johns Hopkins University Press. for the international Food IF’olic1I.r Research Institute. EDGE. ‘I’aron. J.. M. P. Benjamin. Jr.. and G. Piprel-t. Rural Flmmee: Issues Desth and Best Practices. Environmentally and Stick-Allyr Sustainable Development. Studies and Monographs. Series 14. the World Bank. Washington. DC. 1997’. Zeller. M.. and R. L. Meyer. eds. The Trtangle ofMtcrofiJ-tnnee: Financial Sustainability Outreach. and Impact. Baltimore and tendon: Johns Hopkins Universitl.r Press. for the International Food Policy Research Institute. EDGE. Zohir. 5.. and I. Matln. "Wider Impacts of Mieroflnance Institutions: Issues and Concepts.“ J. inter-not. Deoekm. Emma-1:30! b.3313. ...
View Full Document

This note was uploaded on 03/08/2012 for the course ENGINEERIN F04 taught by Professor Irfan during the Fall '08 term at COMSATS Institute Of Information Technology.

Page1 / 19

An_overview - An Overview of Recent DeveloPments in the...

This preview shows document pages 1 - 19. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online