Urban Microfinance Research Articles

Scope economies from rural and urban microfinance services

Microfinance institutions (MFIs) operate in both rural and urban credit markets and provide financial services to the poor not served by commercial banks. MFIs must keep operating costs low to better serve their clients. We evaluate whether MFIs can lower their costs by exploiting economies of diversification from serving both rural and urban markets rather than specializing in only one. We apply a novel method to estimate scope economies that minimizes the well-known “excessive extrapolation” and accommodates MFIs' heterogeneity. Analyzing panel data on MFIs from 105 countries over 2008–2018, we find that about half of loan-only MFIs benefited from diversification and enjoyed scope economies of 16.6% while over two thirds of savings-and-loan MFIs experienced scope diseconomies of 11.7% suggesting advantages from specialization. Over time, the declining magnitudes and the prevalence of scope (dis)economies in both groups suggest that loan-only MFIs have been able to serve costlier marginal clients while savings-and-loan MFIs have been learning and decreasing their scope diseconomies. Stakeholders encouraging the transformation of MFIs into regulated savings-and-loan institutions that serve both rural and urban markets should be aware of the presence of scope diseconomies for that business type and offer adequate support.

Evaluating the role of microfinance institutions in enhancing the livelihood of urban poor

PurposeThe goal of this research is to look at how urban microfinance affects livelihood transformation in terms of poverty reduction, living standards, social well-being, empowerment and entrepreneurship.Design/methodology/approachThis paper analyses the role of urban microfinance towards livelihood with special reference to Western Uttar Pradesh. Primary data were collected from 321 respondents who are users of a microfinance programme using a standardised questionnaire. The data were collected using a stratified random sampling technique, and the data were analysed using structural equation modelling.FindingsUrban microfinance has a considerable impact on poverty reduction, the standard of living, social well-being, empowerment and entrepreneurship in the urban poor, according to the findings.Research limitations/implicationsThe fact that the majority of the borrowers were uneducated was the most significant barrier to them filling out the questionnaire. Their anxiety was the most significant psychological obstacle to successfully answering the questions, and it took time. As a result, it is urged that proper counselling be conducted before the poor borrowers fill out the questionnaire.Practical implicationsThe current study highlights the factors that lead to the utilisation of microfinance services. This research will aid MFIs in selecting the appropriate products and services for the urban poor. The results of this study will aid them in understanding and meeting the expectations of microfinance CEOs.Originality/valueThis is a first study conducted in Northern zone of India measuring the roles urban microfinance institutions (MFIs) in uplifting the livelihood of urban poor.

Micro Finance, Women Empowerment, Livelihood Initiatives and Problems Faced - A Study W.R.T. Bengaluru Urban

This paper examines the effect of urban microfinance on occupation and problems encountered by microfinance actions. The survey through a questionnaire is made on a total of 100 sample respondents locating in the outskirts and slum areas of Bengaluru urban. It is been found that urban microfinance has a statistically trivial positive impact on some income or expenditure variables. Urban microfinance is becoming popular since the urban poor like rural poor also wanted to gain the benefits of microfinance activities. Self Help Groups (SHGs) are deemed to be the most important tools in participation of approach for the socio-economic development of women. Several previous studies have been proved that SHs programmes fall under the type of schemes and savings of micro credit. It has been successful in shifting the life of underprivileged women through enhancement of income and self esteem (Rigin, 2014). It is been observed that there is been a greater association between the attributes under study.

Impact of urban microfinance on the livelihood strategies of borrower slum dwellers in the Dhaka city, Bangladesh

This paper scrutinizes the impact of urban microfinance on livelihood strategies of borrower slum dwellers of Dhaka, Bangladesh (with primary and secondary data). The primary data was collected through a structured questionnaire on a total of 200 sample slum households of three slums (Korail, Jurain and WASA Colony slum) of Dhaka city (by a systematic random sampling). This paper uses econometric techniques of difference in differences (DID) and the probit model to analyze the data. The key finding is that urban microfinance has a statistically significant positive impact on some income or expenditure variables such as savings, educational expenditure, and transportation expenditure, but not with regards to all the income and expenditure variables. The probability of changing occupations of the microfinance borrowers is statistically significantly higher compared to the case of the non-microfinance borrowers. Microfinance also improved housing, utility usages, water and sanitation of the borrowers compared to the case of the non-borrowers. This paper would encourage the global microfinance institutions (MFIs) to expand their activities among the urban slum dwellers to obtain positive changes in the livelihood strategies of them.

Measuring hope amongst Tanzanian women who participate in microfinance: An evaluation of the Snyder hope scale

ABSTRACTMeasuring hope reliably and accurately remains an important research objective, not least in less prosperous settings where ‘holding on to hope’ may be critically important in the struggle against adverse life conditions. The State Hope Scale was designed for use in the US. Despite reported application in diverse cultures and using translations the scale has not been extensively validated outside US populations. This study contributes to a larger project exploring the measurement of hope and provides a critique of Snyder’s scale as used in a Tanzanian female population of 1021 urban microfinance participants. We evaluate the scale’s validity through assessment of the empirical distribution of scores, item response profiles, internal consistency and discriminatory ability. Participants mostly scored very high and many reached very near the maximum attainable score. Hardly any endorsed the negative half of the response scale. Several problems are discussed including poor discrimination and strong evidence of acquiescence response bias. We also found little association of the scale scores with hypothesised correlates of hope. Future improvements on the measurement of hope are recommended, especially in studies outside the narrow Western context in which the scale was devised.

Urban Microfinance in India: Issues and Challenges

With the rapidly growing rural urban migration and increasing settlement of the poor in the cities and town in search of avenues of livelihood, access to adequate and timely finance by urban poor has become an imperative need. This has resulted in shift from earlier total focus on rural poverty to a balanced view that includes urban poverty as well. Urban microfinance, thus has caught immense attention of the policy makers and financial institutions. The size of urban microfinance market has increased significantly and number of players has considerably expanded. With its growing coverage and outreach, urban microfinance has now become an important instrument of urban poverty alleviation. However, inspite of its huge growth potential, urban microfinance is not an easy market because of its diverse client profile, their expectation and variety of products and processes needed. The provision of financial services to the urban poor involves different approach as well as innovative and diverse financial products suitable to the needs of poor and migrant population. Urban areas, especially the big cities, pose various challenge and difficulties. It requires supportive policy, regulatory environment and suitable technology for the orderly growth of urban microfinance sector.

Can agricultural credit scoring for microfinance institutions be implemented and improved by weather data?

PurposeIn recent years, the application of credit scoring in urban microfinance institutions (MFIs) became popular, while rural MFIs, which mainly lend to agricultural clients, are hesitating to adopt credit scoring. The purpose of this paper is to explore whether microfinance credit scoring models are suitable for agricultural clients, and if such models can be improved for agricultural clients by accounting for precipitation.Design/methodology/approachThis study merges two data sets: 24,219 loan and client observations provided by the AccèsBanque Madagascar and daily precipitation data made available by CelsiusPro. An in- and out-of-sample splitting separates model building from model testing. Logistic regression is employed for the scoring models.FindingsThe credit scoring models perform equally well for agricultural and non-agricultural clients. Hence, credit scoring can be applied to the agricultural sector in microfinance. However, the prediction accuracy does not increase with the inclusion of precipitation in the agricultural model. Therefore, simple correlation analysis between weather events and loan repayment is insufficient for forecasting future repayment behavior.Research limitations/implicationsThe results should be verified in different countries and climate contexts to enhance the robustness.Social implicationsBy applying scoring models to agricultural clients as well, all clients can benefit from an improved risk assessment (e.g. faster decision making).Originality/valueTo the best of the authors’ knowledge, this is the first study investigating the potential of microfinance credit scoring for agricultural clients in general and for Madagascar in particular. Furthermore, this is the first study that incorporates a weather variable into a scoring model.

Urban Microfinance Finance for Small Business Owners

Urban Microfinance Finance for Small Business Owners

Urban Microfinance Finance for small business owners

Urban Microfinance Finance for small business owners

The Potential of Urban Microfinance: Illustrations from Bangladesh

The high loan recovery rates, which are almost uniformly above 95%, show that the effectiveness of Microfinance Institutions may be due in considerable measure to the social capital that the Microfinance Institutions build and foster. This social capital is an asset capable of doing further good. Microfinance, and its attendant social capital, might be a possible option to help the poor getting access to urban services. Three new directions for urban microfinance have been suggested—infrastructure and housing; informal sector labor; and nursing education.

Creditworthiness of a Borrower and the Selection Process in Micro-finance: A Case Study from the Urban Slums of India

This article examines whether urban micro-finance institutions (MFIs) consider proxy/hidden collateral in the absence of physical as well as social collateral in judging the creditworthiness of a borrower. MFIs operating in urban slums often adopt an individual lending mechanism since borrowers are not willing to bear joint liability due to the acute problem of migration. Therefore, urban MFIs that offer individual loans are extra-cautious about minimising default risk. This article studies whether MFIs consider ownership of a room in a slum as a hidden selection criterion in a loan programme. Room ownership indicates stability in a particular location, and also indicates the income-generation capability of an aspirant borrower. We use a primary survey database collected from a non-governmental organisation, Navnirman Samaj Vikas Kendra, which provides micro-credit in four slums of north Mumbai in India. We find that the probability of getting selected in a micro-credit programme is significantly higher if a loan applicant owns a room than if the applicant lives in a rented room. MFIs appear to be more concerned about shielding themselves from default than fulfilling the broad goal of maximising social welfare by reaching the poorest of the poor. We present our study with the caveat that the results may not be generalisable, since they are based on a case study. JEL Classification: D78, G20, G21

Microfinance from the Clients' Perspective: An Empirical Enquiry into Transaction Costs in Urban and Rural India

Inclusive financial sectors are important for development in terms of equity and efficiency. Although microfinance has developed rapidly, little is known about the actual costs for clients to access microfinance services, except for interest rates. The insufficient outreach of microfinance in rural areas remains one of the main challenges for the sector. This paper uses the individual data of 255 clients in India and the data of 48 groups to which they belong to compare the transaction costs (TCs) between urban and rural microfinance clients. The results suggest that the TCs incurred by urban microfinance borrowers are globally higher than those incurred by their rural counterparts (4.81% compared with 3.35%), mainly because of their opportunity expenses and individual costs that are unrelated to microfinance groups. Yet, when considering a household's total monthly expenditure level, the microfinance TCs constitute a much higher relative expenditure for rural households than for their urban counterparts. Total TCs are still relatively low compared with the main cost of loans, i.e., their interest rates.

Crediamigo: partnering with Vivacred?

Subject area The case is suitable for undergraduate and MBA courses: strategic management, social entrepreneurship. Study level/applicability Masters, Bachelors. Case overview In Fortaleza, January 2008, an urban microfinance manager and the planning committee of Crediamigo, Brazil's largest microfinance institution need to devise an entry strategy to Rio de Janeiro's microfinance market. A part of the Banco do Nordeste, and a regional development bank for ten years, Crediamigo has 400,000 clients in the Northeast of Brazil. Its objective is to double its clients base for 2011; Rio de Janeiro's market was the next priority. Crediamigo has two options. The first consists of partnering with VivaCred, a small experienced microcredit non-governmental organization (NGO) which operates in Rio de Janeiro's slums. VivaCred was a microfinance NGO with relatively low organizational capabilities and with a low performance in terms of loan repayment. Its lending methodologies were different from Crediamigo's experience. The second option was to set up a new branch of Crediamigo in Rio and to shape it in Crediamigo's image. The committee was aware that this, “far away from home”, would be a costly and slow venture. Expected learning outcomes After using this case, students will: have been exposed to the strategic, managerial and operational challenges of microfinance expansion in an emerging country; understand better the market entry strategy (acquisition/integration of an organization vs green field) in such a context; have discussed the conditions related to the replication of microcredit methodologies (individual, group and village lending methodologies) in their contexts of operations. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Urban microfinance and urban poverty in Bangladesh

Studies of microfinance have hitherto focused upon rural poverty, despite the better production and marketing facilities of urban areas and the higher consumption capacity of urban populations. Since the nature and extent of urban poverty is somewhat similar to rural poverty, and since the urban poor are growing more rapidly than the rural poor, more, if not equal, emphasis should be given to reducing urban poverty. This paper describes the nature of microfinance in urban low-income communities and discusses its importance.

Urban microfinance practices in national capital region, India

Microfinance is a tool for inclusive growth, income generating activities, livelihood security and reducing poverty. Geographical area covered for the study was Najafgarh area, South West Delhi. Inferences and conclusions were drawn based on primary data that were gleaned through field survey. Urban microfinance has not been as pervasive as its rural counter parts. SHG bank linkage model is apt for effective delivery of microfinance service in urban areas. In the study area mean age of sample group is 37.8, years and average size of the household is 4.71. 28.3% of sample women members are illiterate. 54% of the members were encouraged by friends and relatives to tag with SHG. There were 82.2% of SHGs have membership size is 20 and 83% members have availed loan. 17% of loans were utilised for investing in microenterprise or business expansion. Average annual return per group is Rs.5774, that of Rs. 296 per member. Average annual income and expenditure were Rs. 70144 and Rs. 60789, respectively per household and mean savings per household is Rs. 9346. About 94 percent of members have acquired sundry asset and 91 percent of the members satisfied with the services of the facilitating NGO, MYRDO.

Urban Pulse—Urbanizing Microfinance: Examples from India

Microfinance is often presented as a solution to rural poverty. However, increasingly, many countries across the world are turning to it as a mechanism for dealing with the contingencies arising from the marketization of basic services and shrinking welfare provisions. Using examples of urban microfinance from India, this essay shows how, through microfinance, market rationalities are increasingly finding their way into food and housing provision for the urban poor and are displacing social relations that have traditionally sustained them.

A Study on Micro Credit Finance of Select Commercial Bank in Cuddalore District

Micro Credit is defined as a process of meeting the capital requirements of individuals and groups for the startup and sustenance of small business enterprises. This study is confined to the Micro Credit Finance of Cuddalore District. Urban Micro Finance beneficiaries from each group were chosen as the sample respondents. Information's relating to the operations of micro credit at the group level has been discussed with a schedule exclusively prepared for these purpose. Present study is mainly based on responses given by the beneficiaries on the micro credit scheme. This study is an attempt to examine the impact of Micro Credit on the development of agriculturist, artisans, fisheries and women in Cuddalore District and also measure the levels of satisfaction on micro finance. This empirical basis of the study would help to suggest the ways and means for accelerating the growth of micro enterprises through micro groups. Conclusion will be given.

From Urban to Rural: Lessons for Microfinance from Argentina

The recent success of microfinance for the urban self‐employed contrasts with decades of failure on the part of public development banks for small farmers. This article describes the ways in which rural microfinance organisations have tried to adapt the lessons of urban microfinance to manage the risks and control the costs of the supply of financial services in rural areas. It then asks whether the lessons of urban microfinance are likely to apply in the poorest rural areas of Argentina. The article concludes that microfinance is unlikely to improve access to small loans and small deposits for many of the rural poor in Argentina; distances are too great, farmers too specialised, and wages too high. Improved access depends not on targeting loans by government decree but on strengthening institutions that support financial markets.