Microfinance Model Research Articles

Relevance and Impact of Micro-savings in Building Financial Assets for Poor in India

The growth of micro-finance in terms of breadth and width in world as well as in India has been phenomenal. Existing research mainly focuses on its impact on empowerment of poor women through access to micro-credit by promotion of entrepreneurship, reduction in economic vulnerability, etc. One of the major contributions of microfinance is also in terms of provision of access to ‘micro-savings’ to poor women. This other side of microfinance until recently was not given due importance due to predominance given to micro-credit. Slowly it is realised that micro-savings play an equally important role in overall empowerment process of poor women. This paper aims to assess the relevance and importance of ‘micro-savings’ as one of the major tools of empowerment with special reference to India. It uses primary data analysis of 698 microfinance clients from Maharashtra state. The paper concludes that access to ‘micro-saving’ is one of the most prominent reasons for microfinance clients to join the programme and the SHG model of microfinance has resulted in building financial assets for poor women.

Intensive Growth Strategies and Outreach Performance of Tanzania-Based Savings and Credit Cooperative Societies

Research on performance of Microfinance Institutions (MFIs) has attracted a great attention as the demand for microfinance services increases. One of the popular microfinance models is reaching the poor through Savings and Credit Cooperative Societies (SACCOs). A critical area is to assess what drives the SACCOs performance. Most research on SACCOs concentrate on assessing their performance without looking at the contribution of key performance drivers such as growth strategies. Little research has been done on the influence of intensive growth strategies (product development and market development) particularly on the SACCOs outreach performance in Tanzania. This study investigates the contribution of both product development and market development on outreach performance (increased number of SACCOs’ members). Through a multiple regression analysis, the study tests seven hypotheses which are geared towards finding the contribution of both product development and market development on outreach performance. A cross-sectional survey design and multistage probability sampling technique enabled the participation of 167 key SACCOs’ managers (loan officers) from three zones of Tanzania whose views were collected through questionnaires. The study has revealed the significant contribution of both product development and market development on outreach performance. SACCOs need to design growth strategies which suit the needs of their clients and their characteristics. Although an outreach performance can be driven by intensive growth strategies, we suggest that, the SACCOs’ growth should also be harmonized with their financial performance.

Sustainable Conventional and Islamic Microfinance Models for Micro Enterprises

Sustainable Conventional and Islamic Microfinance Models for Micro Enterprises

Financial inclusion and poverty alleviation: an alternative state-led microfinance model of Kudumbashree in Kerala, India

The study examines the microfinance and microenterprise model of Kudumbashree, the state poverty eradication mission of Kerala, and its impact on poverty alleviation in the state of Kerala in India. Kudumbashree's method of identification of the poor is seen to be superior to the conventional head count ratio as it captures the multidimensional characteristics of poverty leading to lesser chances of exclusion of vulnerable families. The microenterprise-linked microfinance model of Kudumbashree has established itself as an effective model linking the state, community, and financial organizations, differentiating itself from other NABARD-led self-help group (SHG) programmes or the Grameena model of microfinance institutions in the country. The fundamental idea of local economic development on which the microenterprise business is built is, however, not free from limitations. Heavy reliance on local markets for procuring inputs and selling outputs makes the products less competitive, questioning the sustainability of a business-led model in the absence of state subsidy in the longer run.

Customer Satisfaction of SHGs with the Primary Agricultural Cooperative Societies (PACS): Evidences from the Field

This paper analyses and discusses the customer satisfaction of the members of SHGs who obtained microfinance from the Cooperative banks, since India is the homeland of the SHG Bank linkage programme model of microfinance. The study concludes that the Cooperative banks treat the SHG members as customers and all the respondents informed that they were treated as good customers. The study concludes that majority of the respondents (87.7%) are satisfied with the banking services of the PACS and 11.7% of the respondents are satisfied to some extend and there is only one unsatisfied customer and the study reports that there is a significant relationship between the year of SHG formation and satisfaction of banking services. The study also found that there is inadequacy of loans and women members were forced to visit many times to obtain loans.

Self‐Help Model of Microfinance in India: The Journey of Two Decades

Self‐Help Model of Microfinance in India: The Journey of Two Decades

DO GROUP DYNAMICS INFLUENCE SOCIAL CAPITAL GAINS AMONG MICROFINANCE CLIENTS? EVIDENCE FROM A RANDOMIZED EXPERIMENT IN URBAN INDIA

AbstractAs an intrinsic part of the classic microfinance model, group meetings are intended to employ social capital to ensure timely repayment. Recent research suggests that more frequent meetings can increase social capital among first‐time clients. Using randomized variation in group meeting frequency for 174 microfinance groups in India, we demonstrate that social capital gains associated with more frequent meetings continue to accrue across multiple lending cycles. However, these effects are reduced when group members differ in their borrowing history. In addition, clients who start with low levels of empowerment report higher social capital gains when matched with similar clients. We discuss how current microfinance policy debates overlook the creation of social capital, including through repayment meeting frequency, and we encourage regulators to undertake a holistic understanding of microfinance's impacts.

Microfinance, Poverty Alleviation and Sustainability: Towards a New Micro-Finance Model for Zimbabwe

The main aim of this paper is to propose the development of a new microfinance model that can approximate sustainability in Zimbabwe. The secondary purpose is to find out whether the same model can be replicated in other developing countries. The paper adopted a mixed methodology. A crosssectional data collection method was preferred because data was collected during the time of high volatility in the country. Questionnaires, interview schedules were combined to collect data from villagers involved in microfinance programmes. Data were collected from 250 households in the Masvingo rural district area of Zimbabwe. The findings show that the two polar models are biased, hence the need for the ‘middle of the road approach’/‘hybrid model’ for the provision of microfinance services to the poor in order to achieve the twin objectives of poverty alleviation and sustainability. The paper is limited to a Masvingo district of Zimbabwe, thus replication could become a challenge. This article attempts to develop a ‘middle of the road’ model for microfinance in Zimbabwe. According to our knowledge, there is no study that has attempted to do the same.

A Modified Microfinance Model Proposed for the United States

Microfinancing is the concept of providing very small amounts of funds to a person or project who would otherwise be unable to obtain a loan. The concept has been successful in many developing counties. However, attempts to apply it to the United States have had little if any success. This paper identified several critical conditions that exist in the United States that help to explain its failings. Significant differences exist in the size of the microenterprise sector, the existence of the functional social safety net, competition from both large firms and commercial lenders, and limits to forming a group based upon joint liability all differ. While the goal in the traditional model in developing markets is the elimination of poverty, we show how those critical conditions help to explain the lack of success in the United States. We propose a modified model whose goal is the creation of an entrepreneurial venture or improving the performance of an existing small enterprise.

The Impact of Micro Credit on Women Entrepreneurs Towards Their Empowerment: A Study on SHGs in Rural RR District of Telangana

Women empowerment encompasses a wide range of interpretations right from seeing it as the means by which individuals and groups take the control of their circumstances and achieve their own goals to as the process of challenging the existing power relations and transforming structures and institutions that perpetuate gender discrimination. In the last two decades of 20th century world intelligentsia recognized the role of women empowerment in the development agenda and World Bank included GDI and GEM as a part of its developmental goals also.In India SHG – Bank linkage program is very popular model of microfinance and is regarded as ‘magical wand’ of women empowerment. SHG (Self Help Groups) Federations is a development over it. The federation model known as IKP is implemented in the study area RR district. The research questions that prompted for this study are – What exactly is the process of empowerment? Is it true that micro finance and self help groups can bring empowerment? Can gaining access to credit and other facilities itself expand their choices and decision making abilities? The present paper is a probe into the conceptual intricacies and also contains an investigation conducted in Ranga Reddy district of Andhra Pradesh. The study mainly aims to assess the empowerment aspects among women in economic, family, social and political fronts by classifying them into two categories namely ‘micro entrepreneurs’ and ‘passive beneficiaries’.

English

Microfinance has long been used a developmental tool to fight poverty. It has been operational since the 1960s. Recent studies have shown positive impacts of microfinance with respect to generating income and smoothing consumption of its clients. On the other hand, a number of critics argue that microfinance has not been able to achieve its main objective of fighting poverty. This is due to the shift that has taken place in the industry from poverty-focus to profitoriented business-focus. Above all, microfinance faces other challenges on its way to succeed. One of the major challenges is that the product is not universally applicable or it does not tailor with the belief system of the Muslims despite the fact that one third of the world poor are Muslims. There has been a growing effort to create an „Islamic‟ model of microfinance. The Islamic Model of Microfinance represents a new paradigm of social enterprise in which profit and loss sharing replaces interest-based financing. The growth of Islamic microfinance has led organizations such as the Consultative Group to Assist the Poor (CGAP), a multilateral organization distributing knowledge about Islamic microfinance, and the Islamic Development Bank (IDB) to begin understanding this new way of approaching poverty. The objective of this paper is to review the existing Islamic microfinance institutions (IMFIs) in Bosnia and Herzegovina (BH), and to propose a Shariah compliant microfinance product in Islamic microfinance operations particularly in BH.

Bank-insured RoSCA for microfinance: Experimental evidence in poor Egyptian villages

Microfinance institutions (MFIs) have continued to grow over the past few decades, both in numbers of clients and portfolio sizes. The growth of these MFIs has enabled greater access to credit in many of the world's less developed nations. However, recent studies have shown that very many of the poor – especially Muslims – remain unbanked. Confounding this problem in many Muslim countries is the poor's propensity to reject microfinance, when available, on religious grounds. In this paper we develop an alternative microfinance model which aims to establish credit unions for the poor in which the bank plays the role of a guarantor in the familiar rotating savings and credit association (RoSCA). We test the performance of this model against a stylized sequential Grameen-style microcredit provision in a “laboratory experiment in the field” conducted in poor Egyptian villages. Our model of bank-insured RoSCAs is shown to solve coordination-failure problems that may otherwise prevent the spontaneous development of informal RoSCAs in practice. Empirically, our bank-insured RoSCA model generated significantly higher takeup and repayment rates than the Grameen model. This suggests that this model, by overcoming the religious barriers to credit, can be a useful alternative to Grameen-style microfinance.

Loan Portfolio of a Faith-based Microfinance Institution: An Empirical Analysis

An effective tool of economic development is found in microfinance and is believed to provide sustainable mechanism for poverty alleviation. The microfinance institutions across the world operate on a few established models and have been able to make a considerable impact in the areas of financial inclusion and poverty alleviation. However, the industry also needs innovative models and products to attain the targets set under the Millennium Development Goals. In addition to this, there is a need for client-centered models in order to overcome the problems of client dissatisfaction and loan defaults that have been reported in the recent past. This study focuses on the faith-based model of microfinance that differs from mainstream microfinance basically in terms of the underlying values. Faith-based organizations have a long history of participation in the areas of human development. Apart from charity-based lending, many such organizations are also functioning as microfinance institutions that are successfully delivering financial services to the poor. There is a need to study the procedures and performance of these institutions in order to ascertain their distinctive features and potential. Along with other indicators like outreach, impact, and financial sustainability, loan portfolio of a microfinance institution is also a good indicator of sustainability and throws light upon other important features. The main objective of this study is to understand the loan portfolio of faith-based microfinance institutions. A sample of 100 loan clients was purposively selected from one faith-based microfinance institution. This microfinance institution was selected from the list of faith based institutions generated after the literature review. The factors studied were the loan repayment cycles, general demographics and, the relationship between various factors involved in loan repayment. The study also tries to understand if such institutions have any discriminatory lending policies towards clients of other faith.

Client Satisfaction in Faith-Based Microfinance: A Comparison with Mainstream Models of Microfinance

The main purpose of this paper is to compare the client satisfaction of faith-based and mainstream microfinance institutions. The level of satisfaction is considered on eight independent factors identified through literature survey and experts’ opinion. The data-set comprised of a total of 300 microfinance clients - 150 from faith-based microfinance institutions and 150 from the mainstream microfinance institutions. The data was collected through a structured questionnaire comprising of agreement disagreement on 5-point Likert scale. Independent sample t-test was employed to determine if any significant difference exists in the satisfaction level of clients in the two models of microfinance. The results indicate that there is no significant difference among the two groups on the variables reasonability of interest rates (p=0.49), loan procedure (p=0.13), technical assistance (p = 0.822), and branch location (p = 0.36). However, there are significant differences in the two groups on the variables clients repayment policy (p=0.0001), timely availability of loan (p=0.0001), non-discrimination (p = 0.0001) and supportive staff (p = 0.005). The mean values suggest that the clients of faith-based microfinance institutions are more satisfied on these variables. The recent reports on microfinance suggest that the mainstream microfinance programs and policies that were developed for delivering the benefits of financial inclusion and poverty alleviation neglected the client perspective. The results of this study should be of significance to policy makers who are considering various alternatives to attain the goals of poverty alleviation stipulated in the Millennium Development Goals. The paper contributes to the limited empirical studies available on client satisfaction as well as the faith-based model of microfinance.

The Contribution of the Microfinance Model to Bosnia's Post-War Reconstruction and Development: How to Destroy an Economy and Society Without Really Trying

Academic analyses and impact evaluation studies produced by the international development community almost all conclude that the microfinance model has made an important net contribution to the economic and social recovery of post-war Bosnia and Herzegovina (hereafter Bosnia). However, as we now are finding is also the case in many other countries, these far-reaching claims are almost entirely based upon often deliberately flawed impact evaluation methodologies and inappropriate success criteria. This article provides an alternative assessment of the available evidence accumulated to date which, in our opinion, actually shows that the microfinance model has made a distinctly negative contribution to Bosnia’s reconstruction and development effort. We argue, centrally, that the microfinance model has assisted the Bosnian economy to move to an unsustainable institutional development trajectory marked by the deindustrialisation, informalisation and infantilisation of the enterprise sector. More widely, we argue that the microfinance model in Bosnia has led to a sub-prime-style episode in Bosnia’s post-war history, one that has materially benefitted a tiny elite working within and around the microfinance sector whilst simultaneously destroying many of the most important pillars of the Bosnian economy and society. We find that the best possible explanatory framework for what has transpired in postwar Bosnia is contained in the ‘control fraud’ concept developed by William Black.

The Age of Microfinance: Destroying Latin American Economies from the Bottom Up

This article argues that the microfinance model that arrived in Latin America in the 1970s has proven, as elsewhere around the world, to be an almost wholly destructive economic and social policy intervention. Centrally, I argue that the microfinance model is responsible for embedding and giving continued impetus to an adverse ‘anti-development’ trajectory in Latin America’s economies, one that has progressively helped to de-industrialise, infantilise and informalise the overall local economic and social structure. Until recently, the extent and precise nature of this ‘anti-development’ trajectory has been ignored for fear of undermining and delegitimizing the global microfinance model and, with it, the dominant political-economic philosophy – neoliberalism – that essentially gave life to it. Effective local industrial policies and ‘pro-development’ local financial institutions are now urgently required in Latin America to build genuinely sustainable and equitable solidarity-driven local economies from the bottom up.

The Informalisation of the BiH Economy and the Role of the Microfinance Model

This paper looks at the progress with the microfinance model in post-conflict Bosnia. It analyses why the evidence clearly indicates that has begun to fail as a development model and the international development community has made a major policy mistake in promoting it. It analyses some of the reasons why microfinance was considered so important to Bosnia.

The Microfinance Illusion

In both developing and transition economies, microfinance has increasingly been positioned as one of the most important poverty reduction and local economic and social development policies. Its appeal is based on the widespread assumption that simply ‘reaching the poor’ with microcredit will automatically establish a sustainable economic and social development trajectory animated by the poor themselves. We reject this view. We argue that while the microfinance model may well generate some positive short run outcomes for a lucky few of the ‘entrepreneurial poor’, the longer run aggregate development outcome very much remains moot. Microfinance may ultimately constitute a new and very powerful institutional barrier to sustainable local economic and social development, and thus also to sustainable poverty reduction. We suggest that the current drive to establish the central role of microfinance in development policy cannot be divorced from its supreme serviceability to the neoliberal/globalisation agenda.

Loan Portfolio of a Faith-Based Microfinance Institution: An Empirical Analysis

An effective tool of economic development is found in microfinance and is believed to provide sustainable mechanism for poverty alleviation. The microfinance institutions across the world operate on a few established models. The studies indicate that the microfinance institutions have been able to make a considerable impact in the areas of financial inclusion and poverty alleviation. However, the industry also needs innovative models and products to attain the targets set under the Millennium Development Goals. In addition to this, there is a need for client-centered models in order to overcome the problems of client dissatisfaction and loan defaults that have been reported in the recent past. This study focuses on the faith-based model of microfinance that differs from mainstream microfinance basically in terms of the underlying values. Faith-based organizations have a long history of participation in the areas of human development. Apart from charity-based lending, many such organizations are also functioning as microfinance institutions that are successfully delivering financial services to the poor. There is a need to study the procedures and performance of these institutions in order to ascertain their distinctive features and potential. Along with other indicators like outreach, impact, and financial sustainability, loan portfolio of a microfinance institution is also a good indicator of sustainability and throws light upon other important features. The main objective of this study is to understand the loan portfolio of faith-based microfinance institutions. A sample of 100 loan clients was purposively selected from one faith-based microfinance institution. This microfinance institution was selected from the list of faith based institutions generated after the literature review. The factors studied were the loan repayment cycles, general demographics and, the relationship between various factors involved in loan repayment. The study also tries to understand if such institutions have any discriminatory lending policies towards clients of other faith.

Successful Implementation of the Millennium Development Goals in Nigeria: What Roles the Financial Systems are Expected to Perform?

The nation Nigeria, was one of the 50 richest countries in the world in the early 1970s, but has retrogressed to become one of the 25 poorest countries at threshold of the twenty first century. It is ironic that Nigeria is the sixth largest exporter of oil and at the same time harbors the third largest number of poor people after china and India. What a paradox, but that indeed is the reality today. However, the United Nations Millennium Development agenda is comprehensively addressing the core problems of under-development and primitiveness that continues to set Nigeria back since independence. In September 2000, leaders from 189 nations ratified the Millennium Declaration. The declaration was an unprecedented global commitment and one of the most significant United Nations documents in recent times. It offers a common and integrated vision on how to tackle some of the major challenges facing the world of our time. The declaration has resulted in Eight Millennium Development Goals (MDGs) focused on reducing poverty, improving the quality of peoples’ lives, ensuring environmental sustainability, and building partnerships to ensure that globalization becomes a more positive force for all the world’s people. Also specific targets and indicators have been set and put in place for each of the goals, to be achieved by 2015. This study attempted to identify the key roles financial institutions particularly Micro Finance Banks can play in helping to achieve these MDGs objectives in target time in Nigeria. The study offered the following recommendations amongst others; the need for re-engagement in entrepreneurial development through integrated microfinance model and it also suggested that major efforts should be made to remove the critical material, institutional and policy obstacles that prevent the rural poor from seizing opportunities for improved livelihoods in ways that they themselves can sustain and improve upon.