Microcredit vs. Microsaving

Discussion

Xavier Gine, DECRG

Is Microfinance rhetoric misleading?

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? 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 According to web page, there is a

Working Capital loan and a Fixed Asset loan, of differing maturity and installment frequencies.

Measuring Creditworthiness 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. How important is “soft” information?

Measuring Creditworthiness

Measurement can be overly costly (credit officers spent 1.5 hrs with each respondent).

Solutions: Joint liability? Test loan?

Aversion to Debt?

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?

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 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