Microfinance Clients Research Articles

Assessing Beneficiaries Perceptions of Service Delivery in Microfinance Institutions

Commercial banks and recently founded MFIs are two major competitors for microfinance institutions (MFIs). The same microfinance clients are now being targeted by an increasing number of MFIs. The demand for microfinance consumers has increased, which has led to a rise in the sophistication of the services that these customers expect from MFIs. MFIs, however, are putting a lot of effort into keeping and satisfying their clients. MFIs must pay closer attention to the priorities and preferences of their customers in order to comprehend their demands and preferences in the current competitive climate. Today, obtaining customer happiness is crucial to accomplishing MFI goals. As can be seen from the foregoing, MFIs' ability to succeed depends on their ability to do business with their clients. In light of this context, the article dives to assesses beneficiaries' opinions on the services of MFIs', microfinance and other associated services.

Demand for Commitment in Credit and Saving Contracts: A Field Experiment

Abstract We conduct a field experiment in which we offer credit and saving contracts to the same pool of Pakistani microfinance clients. Additional treatments test ex ante demand for soft commitment (in the form of reminders, either to respondents or to their families), hard commitment (in the form of a penalty for missing an instalment) and flexibility (an option to postpone an instalment) to save or pay loan instalments on time. We find substantial demand for fixed repayment contracts in both the credit and savings domains, in ways that imply that respondents value the commitment required. While we find little or no average demand for additional contractual features, we nonetheless observe that different combinations of contractual add-ons are preferred depending on the respondent’s level of financial discipline. Respondents with high financial discipline prefer flexibility in credit contracts when combined with reminders to self while those with low discipline value penalties in savings contracts only when paired with reminders. Our results imply that, for the average microfinance client, demand for commitment is met through the regular payment schedule built into standard microcredit or commitment savings contracts. However, combining penalties or flexibility with reminders may appeal to certain subsets of clients.

Repayment Flexibility and Risk Taking: Experimental Evidence from Credit Contracts

Abstract A widely held view is that small firms in developing countries are prevented from making profitable investments by lack of access to credit and insurance markets. One solution is to provide repayment flexibility in credit contracts. Repayment flexibility eases both the credit constraint, as it allows for increased spending during the start-up phase, and offers insurance, in case of fluctuations in income. In a field experiment among traditional microfinance clients and larger collateralized borrowers in Bangladesh, we randomly assign the option to delay up to 2 monthly repayments at any point during a 12-month loan cycle. The flexible contract leads to substantial improvements in the traditional microfinance clients’ business outcomes, driven by borrowers in the upper tail of the distribution. In addition, we find a significant impact on socio-economic status, combined with lower default rates. We show theoretically and empirically that these effects are induced by an increase in entrepreneurial risk taking, implying that the primary mechanism is insurance provision. Repayment flexibility also attracts less risk-averse borrowers interested in business expansion. At the same time, the effects for the larger loan are much more modest. Our findings suggest that lack of insurance is an important constraint for small firms but that a simple financial product that increases repayment flexibility can be an effective tool for enabling enterprise growth.

Preparing fertile ground: how does the quality of business environments affect MSE growth?

We study how the quality of local business environments helps explain growth outcomes of micro- and small enterprise microfinance clients by drawing on long-term nationwide administrative data and a policy shock in Cambodia. The staggered launch of special economic zones, which we link to positive shocks to the business environment on both the demand and supply side, leads to significantly increased employment in micro- and small enterprises (MSEs) located in these special economic zones (SEZs), compared to enterprises in contextually similar districts that are unexposed to an SEZ. Key channels explaining the improved growth outcomes include expanded access to external markets for the enterprises’ goods and services, more dynamic labor environments, and improved credit terms and conditions. To broaden the relevance of our findings, we combine data from prominent empirical studies on microfinance and demonstrate how related business conditions identified in the enterprise growth literature help explain differences in client business outcomes found in their results. Policy implications are that a smaller but influential segment of microfinance borrowers significantly benefit from opportunities provided by improved local business environments and that governments and lenders can play active roles in facilitating the necessary improvements for such MSEs.

Regulatory non-compliances in microfinance operations: a survey of Indian microfinance institutions

PurposeRegulation is critical for sustainable microfinance sector growth. Under this premise, the study aims to examine the different regulatory noncompliance (RNC) practices prevalent in the operations of microfinance institutions (MFIs) at the ground level.Design/methodology/approachBoth the quantitative and qualitative (observations, interviews and focus group discussions) techniques are used to extract the findings.FindingsThe study highlights the different RNC practices exercised by the loan officers at the field level in their microfinance loan disbursements.Originality/valueThis study is based on the primary data collected from microfinance clients. The arguments put forth for the RNC practices are extracted from direct personal interviews with the loan officers and the clients. The role of various dilemmas/circumstances of the loan officers and the beneficiaries that implicate the MFIs in RNC is highlighted.

Microfinace and Gender Equality: Issues and Outlook

In recent years, microfinance has emerged as a significant tool in the fight against poverty. The microfinance scheme has proven effective in elevating individuals beyond the poverty line by offering enhanced self-employment prospects and fostering creditworthiness. In India, the microfinance sector has witnessed substantial growth, catering to both rural and urban populations with a comprehensive range of financial services. While the core concept of microfinance encompasses more than just microcredit, the terms microfinance and microcredit are often used interchangeably. Notably, the microfinance industry places a strong emphasis on empowering women clients due to their proven creditworthiness. An overwhelming 97 percent of microfinance clients are women, reflecting their pivotal role in this domain. However, despite this focus, there appears to be a lack of concerted efforts from microfinance institutions (MFIs) to genuinely promote women's empowerment and gender equality. This paper draws on secondary data and articles, supplemented by the researcher's own experiences as a Branch Head at BASIX and Janalakshmi Financial Services Pvt Ltd. The study aims to delve into gender-related challenges within the microfinance industry, identify opportunities for achieving gender equality, and examine the obstacles and potential pathways toward this goal. Additionally, the researcher investigates the rationale behind the strong emphasis on women within the microfinance sector. In conclusion, the findings suggest that, beyond the mere provision of credit, MFIs have not adequately prioritized gender equality initiatives. Consequently, the anticipated positive impact of microfinance on gender equality has yet to materialize on the ground. It is imperative for MFIs to take proactive steps towards promoting gender equality, not only to enhance the borrowers' livelihood sustainability but also to ensure the long-term viability of these institutions

The Origins of Optimism: A Lab-in-the-Field Experiment among Microfinance Clients in Bolivia

The Origins of Optimism: A Lab-in-the-Field Experiment among Microfinance Clients in Bolivia

Applicability of Islamic microfinance as an alternative tool for Poverty Eradication in Nigeria

The microfinance system is one of the governmental and non-governmental initiatives to eradicate poverty, even though conventional microfinance does not satisfactorily serve the needs of underprivileged households in Nigeria. However, Islamic microfinance has great potential to facilitate its roles in providing financial services per Islamic values. This research examines Islamic microfinance's perception of poverty eradication in the Kwara State of Nigeria. The 364 responses from microfinance clients in Ilorin, Kwara State of Nigeria, were analyzed through SPSS using descriptive and Pearson coefficient moment correlation (PPMC). The findings indicated a positive statistically significant correlation between Islamic microfinance and household income (PEHI), healthcare (PEHC), education(PEED), and employment(PEEM). This study is significant as it presents the applicability of Islamic microfinance for eradicating poverty in the study area. Policymakers should widely institutionalize Islamic microfinance institutions nationwide and take necessary and exclusive measures to ensure their effectiveness for poverty eradication and achieving sustainable socioeconomic development.

Does Microfinance Singlehandedly Empower Women? A Case Study of Bangladesh

The role played by microfinancing in the empowerment of women has been a subject of debate in recent literature. By employing the case study method, this paper explores the influencing determinants. Data was obtained from a field interview comprised of 20 female microfinance borrowers and their male family members, as well as focus group discussions and participant observation. The economic, social, and political empowerment of the interviewed women were assessed using Kabeer’s empowerment framework, and the results reveal that microfinancing does not influence the economic and political dimensions of female empowerment; instead, microfinancing was observed to empower women socially, particularly with respect to their participation in major decision-making. The results further indicate that the age, family type, educational level, financial literacy, and training of female microfinance clients play important roles in their empowerment.

Microfinance and Women’s Empowerment in Myanmar

Like in many other developing countries, microfinance programmes in Myanmar have become an avenue to reduce poverty. This research examines whether microfinance in Myanmar has empowered female clients compared to non-microfinance clients, in terms of: (i) general decision-making (children’s education, family planning, children’s marriage, health care); and (ii) financial decision-making (income utilisation, loan usage, savings, investment). Primary data was collected using a questionnaire survey to achieve the research objectives. The sample of the survey consists of two groups of women living in the Ayeyarwady region, Myanmar: (i) Beneficiaries of microfinance programmes, and (ii) non-beneficiaries of any microfinance institutions. Female clients either started a new business or expanded/diversified an existing business using microfinance, which helped to increase income and savings. Overall, 89.8% of microfinance clients have gained significant empowerment (in making general and financial decisions combined). The discriminant analysis based on four indicators - children’s education, children’s marriage, savings, and investment - shows that the decision-making power of microfinance clients has improved compared to non-clients. The government should actively promote a microfinance ecosystem through robust microfinance institutional frameworks including, microfinance institutions, intermediaries, and local government agencies. Financial literacy awareness campaigns should be organised frequently to promote wider women’s participation in microfinance programmes.

Impact of Microcredit on Micro-Enterprise Development: A Case of Gandaki Province of Nepal

This study examines the impact of microcredit on micro-enterprise development in the Gandaki Province of Nepal. The data is collected through a structured questionnaire from microfinance clients involved in microfinance institutions for five or more years. The explanatory research design is used to find the impact of microfinance intervention on micro-enterprise development. The study finds that microfinance intervention has made significant changes in micro-business and enterprise development with the help of microcredit. The regression results show that microcredit has increased the investment, revenue, and profits of micro-businesses and helped expand them and generate employment. Proper utilization of microcredit is critical to the success and sustainability of microcredit enterprises.

Factors affecting multiple borrowing among microfinance clients: evidences from Bangladesh

PurposeAlthough microfinance had experienced rapid growth in most developing economies, multiple borrowing remains a growing concern for practitioners and researchers in recent years. Hence, the main purpose of the study is to evaluate the factors affecting multiple borrowing among microfinance clients.Design/methodology/approachThe primary survey data of 400 microfinance clients from Bangladesh was collected to execute the research objective. Considering the types of dependent variable, this study employed logistics, probit, ordinary least squares (OLS) and Poisson regression techniques to analyze the data.FindingsAmong others, it was discovered that the expected (requested) loan amount is positively associated with multiple borrowing, while the level of training, small cattle farming business and marital status (widow/separated) exhibited negative effects under logistic regression. These results are robust with respect to the regression method, the specification and the definition of the outcome variable. Also, supply-side incentives (e.g. training) were found to partly influence the multiple-borrowing behavior of microfinance clients. These findings reiterate the contribution of both demand and supply-side factors to the multiple-borrowing behavior of clients. Consequently, policy implications and future research direction are advanced.Originality/valueThe authors have examined some individual-level characteristics as well as some supply-side incentives to better understand the underexplored issue of multiple-borrowing behavior among microfinance clients.

Modeling the Demand for Islamic Microfinance Services: An Application of PLS-SEM Approach

The access to capital is very crucial for ensuring the financial sustainability of microfinance clients. It is also equally important to determine the demand for microfinance services among the clients. This study aims to identify the factors affecting the demand for Islamic microfinance (IsMF) services among the women micro-entrepreneurs in Malaysia. This study has collected a total of 250 samples from the field survey on women micro-entrepreneurs who are also the clients of Amanah Ikhtiar Malaysia (AIM). In addition, Partial Least Squares (PLS) method used to identify the potential factors (4As) i.e., affordability, accessibility, adequacy and awareness affecting the demand for IsMF. The results show that only “accessibility” has significant and positive relation with the demand for IsMF. Besides, the measurements items of accessibility such as distance of IsMF institution, collateral requirement, guarantor requirement, application procedure and process, repayment method, service efficiency, advise and consultation, and number of IsMF centers are the key factors affecting the demand for IsMF services in Malaysia. This paper provides some insights for the policy makers of Islamic microfinance and recommends that IsMF providers should take accessibility factor into greater consideration for the economic upliftment of women in microenterprises in Malaysia

Socio-Economic Determinants of Loan Repayment Capacity of Somali Microfinance Clients in Kebridahar Town, Somali Regional State, Ethiopia

Somali microfinance finance institute (SMFI) was established to provide inclusive financial services to rural and urban poor households with the ultimate goal of poverty alleviation in the Somali regional state. Even though SMFI is working better to upgrade itself to a licensed bank-Shabelle Bank and is showing livelihood improvement for poor households in the Somali region so far, loan repayment problems are currently the major challenge facing the institute, which can discourage it from promoting and extending credit to poor people in the future. Therefore, this study intended to assess the determinants of the loan repayment capacity of borrowers in the Kebridahar District of Korahey Zone. Out of the total 4330 borrowers received from the SMFI Kebridahar branch, 188 representatives were selected by dividing the borrowers into two strata, in terms of loan payment status defaulters and non-defaulters. Data were collected from both primary and secondary sources. The primary data was collected from a sample of 188 borrowers using a two-stage sampling method. Descriptive statistics and an econometric model were used to analyze the data. The result of descriptive statistics revealed that Education level, household head experience in credit, family size, marital status, loan diversion, occupation type, and getting trained were shown significant differences between defaulters and non-defaulters. According to the logistic regression model result out of nine variables included in the model, Age, education level, and access to training of household head positively and significantly affected the loan repayment capacity of the borrowers while marital status (get-married) and loan size were found to be negative and significantly affecting the repayment capacity of the borrowers. Therefore, this study recommends that the microfinance and other regional concerning offices should give attention to these significantly affecting variables for further strategic and policy decisions.

Microfinance Services and the Clients’ Socioeconomic Wellbeing During the Covid-19 Pandemic in Uganda

Microfinance is reported to be an effective tool of empowerment for vulnerable and marginalised groups, especially women. This study set out to investigate the relationship between microfinance services and the clients’ socioeconomic wellbeing during the Covid-19 pandemic in Uganda. The study involved 73 employees of microfinance institutions that deal directly with the clients. The study findings revealed that while no significant relationship exists between microfinance services and clients’ socioeconomic wellbeing, there is a significant moderate positive relationship between microfinance client protection policies and the clients’ socioeconomic wellbeing. The regression model revealed that a unit increase in client protection policies increases the socioeconomic wellbeing of microfinance services beneficiaries by 72%. It is recommended that microfinance institutions integrate client protection policies in their activities in line with their known social mission

Fostering savings by commitment: Evidence from a quasi-natural experiment at The Small Enterprise Foundation in South Africa

• We studied the effects of a program that strengthened savings incentive mechanisms without coercion. • The project was set up by The Small Enterprise Foundation, a microfinance institution based in South Africa. • The experiment had a quasi-natural approach as it was implemented in non-randomly selected locations. • DID estimates show a persistent improvement in the savings habits of customers , but suggest a slow accumulation of savings. • Asking microfinance clients to identify a savings goal and commit to a regular deposit to achieve it is a promising avenue. We studied the effects of a pilot project that strengthened savings incentive mechanisms. The project was established by The Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa. The program introduced a savings stimulus in the form of a Goal Card : clients subscribing to this (non-coercive) tool were required to identify a savings goal and to commit to regular payments to reach it. The experiment had a quasi-natural approach as it was implemented by SEF in non-randomly selected locations. Difference-in-differences estimates show improved savings habits among those of the foundation’s customers who were involved in the program, compared to the counterfactual that are identified using propensity score matching. The effect of the program manifested in its second semester, suggesting a persistent change of habits but a slow accumulation of savings. We conclude that asking microcredit customers to identify a savings goal and commit to a regular savings amount to achieve it is a promising savings incentive mechanism.

Does it (Re)pay to be Female? Considering Gender in Microfinance Loan Officer-Client Pairs

This paper examines the effect of the gender combination of client-loan officer pairs on loan repayment in an Ecuadorian microfinance institution. We show that among the four possible client-loan officer gender pairs i.e. female client-female loan officer, female client-male loan officer, male client-male loan officer and male client-female loan officer, the most favourable pairs in terms of repayment are those with female loan officers whereas the least favourable are those with male loan officers. We also show that repayment is even further enhanced for all client-loan officer pairs when the client’s previous loan officer was a woman. Our findings point to relational differences between male and female loan officers when interacting with microfinance clients, which is also highlighted by our qualitative insights from the field.

Measuring Spillover Effects from an Entrepreneurship Programme: Evidence from a Field Experiment in Tanzania

In this paper, we identify treatment spillovers between microfinance clients in Tanzania using data from a partial population experiment where only a subset of loan group members was offered treatment in the form of business training, a business grant, or both. Our results show large and significant spillover effects from indirect exposure to treatment through group peers. In particular, we find that male microfinance clients with peers receiving both business training and the business grant experience to have significantly higher sales than those not receiving any treatment. Moreover, microfinance clients with positive spillovers make higher investments and borrow more. In addition, the treatment impacts are higher for group members with smaller loans (which is consistent with higher marginal rates of return to capital), and for members in groups with a greater share of women. Our findings illustrate that loan groups may be an important arena for the sharing of entrepreneurial resources, and that standard treatment–control analyses of similar interventions may underestimate impacts in settings with close social interactions.

Money or Management? A Field Experiment on Constraints to Entrepreneurship in Rural Pakistan

This paper identifies the relative importance of human and physical capital for entrepreneurship. Microfinance clients were offered business training and a loan lottery of up to seven times the average loan size. Business training increased business knowledge, reduced business failure, improved business practices, and increased household expenditures by US$82 per year. It also improved financial and labor allocation decisions. These effects are concentrated among male clients, however. Access to larger loans, in contrast, had little effect, perhaps because current loan sizes already meet the demand of most clients. Despite these positive impacts, business training was not cost-effective for the lender.

Cash in hand and savings decisions

Cash is an important means of transaction, generally assumed to be fungible. However, behavioral economics and consumer research show that ‘cash in hand’, physically holding on to cash and then handing it away, affects purchasing decisions. I study how cash in hand influences decisions in a different, but very important domain: savings. Savings accounts are a promising tool for reducing poverty, but the use of savings accounts is often puzzlingly low. Holding on to cash that needs to be physically deposited into a savings account may increase the psychological costs of saving. This study experimentally identifies the causal effect of cash in hand on savings deposits of female microfinance clients in the Philippines. In contrast to many laboratory and several field studies with similar interventions, I do not find reduced savings deposits due to cash in hand.