1 / 15

Microfinance in South Asia

Microfinance in South Asia. Richard Palmer-Jones, School of Development Studies, University of East Anglia, South Asian Development, Spring 2007. Financial Market Failures. Colonial (and earlier) analysis of usurious moneylenders

zahur
Download Presentation

Microfinance in South Asia

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Microfinance in South Asia Richard Palmer-Jones, School of Development Studies,University of East Anglia,South Asian Development, Spring 2007

  2. Financial Market Failures • Colonial (and earlier) analysis of usurious moneylenders • Slow rate of growth of agriculture “forced commercialisation thesis … argu[es] that moneylenders as a class might be averse to land improving investments” Roy, 2006:162 • Usury, debt, land transfer and political instability • Malcolm Darling on “The Punjab Peasantry in Prosperity and Debt” • debt associated with prosperity and creditworthiness • “peasant cultivators who take over the burden of 'irrationality,' while moneylenders emerge as rational but immoral.“ • Rational entrepreneurs • “.. the moneylender as an independent, strictly small-scale entrepreneur whose business activities are confined to credit transactions with his client agriculturalists.” • Failures of rural and small farmers’ credit • Old and New farm/rural credit policies

  3. Microfinance: a Policy that Succeeds? • “In the public eye, and according to many analysts, microfinance has been successful“ (Hulme & Moore, 2006) • Success in Bangladesh? • Mainly within the NGO sector • Donor support • Has Microfinance been a success? • What sort of success? (economic, social, political) • Under what conditions has it been successful? • Back to Darling?

  4. Agricultural Marketing and Credit • Usurious money lenders • Credit cooperatives • Rural financial institutions • Interlinked contracts

  5. Farmer and Rural Credit • Old Credit Policies • Replace inefficient rural financial markets/institutions • Fragmented and incomplete • Unequal access and terms (social, temporal, spatial) • seasonal cash constraints • Credit constraints for agricultural (and rural non-farm enterprise) inputs • Fixed capital (irrigation pumps, tractors, buildings/storage, etc.) • Variable inputs (fertilisers, pesticides, seeds, fuel, repairs, animal feeds, etc.) • Promote new agricultural technologies • Green revolution • Compensate for low agricultural output prices - subsidy • Political patronage (electoral cycles) • Accommodate aid donors

  6. Institutions & instruments of the old credit policies • Institutions • Agricultural banks • Credit cooperatives (KSS in Bangladesh) • Multi-purpose development institutions • Crop and project authorities and state marketing boards • Commercial banks (rural/farm/project quotas) • Instruments • Subsidised interest rates • Credit targets and portfolio regulations • Credit linked inputs and or outputs, etc. • Problems • “fungibility” and wasteful borrowing • Financial non-viability • Lack of savings opportunities • High transactions costs • Corruption and poor loan recovery rates • Widespread exclusion and unmet need

  7. Analysis of Credit Markets • Moral Hazard • Unobserved action • Adverse Selection • Unobserved type • Borrowers • Lenders • Intermediaries • Sponsors

  8. New credit policies • Financial Sustainability • Commercial interest rates • Loan recovery • Savings • Institutional innovations • Contract farming • Group saving and lending • Microfinance institutions • Peer-group monitoring • Diversified financial services

  9. Typology of

  10. Financial Services and Well-being • The numbers • Many households take credit but these records are not very clear about benefits • Loans for investment • Invest in physical (including working) and human capital • Take on more profitable (risky) activities • Reduce dependence on high cost and exploitative sources of finance • Consumption smoothing • Consumption credit

  11. Can we evaluate microfinance using econometrics? • How good are the data on credit etc.? • Selection of sites by programs • Non-random placement of programs • Selection of clients • Better off • Now well accepted that the “poorest” generally not included • Different programs have different targets • Self selection • Unobserved characteristics

  12. A More Commercial Approach? • Linking to formal financial institutions • Financial performance vs social performance – the “double bottom line” • Repayment rates • Subsidies • Poverty reduction • Empowerment • Women • The old • Youth • Marginal groups • But is growth and macro-economic stability key?

More Related