T2

Sources of income for treatment and control groups. microfinance impact in the bold box. The impact is felt by a typical person who gains access to a microfinance program. We term this position T2, taken to be four years after the program started. Before access to the program, in year 0, this person's income is reflected by position T1. The difference between T2 and T1 is a useful place to start as it nets out the roles of those measured and unmeasured individual attributes that do not change...

Summary and Conclusions

Critics of failed state-owned banks have formulated a devastating critique of subsidies. The lessons should be taken to heart, but economic analysis shows that in principle subsidies in modern microfinance can be well-designed. And, if so, they can be part of efforts to achieve meaningful transformations in the lives of clients, without sacrificing the integrity of the institution. Doing it well in practice remains the ongoing challenge, but the growing number of subsidized programs that can...

Roots of Microfinance ROSCAs and Credit Cooperatives

See Rutherford 2004, Ruthven 2001, and Ruthven and Kumar 2002. The studies are available at www.man.ac.uk idpm. 2. Over time, ROSCA members move in and out of the groups, so that eventually the members may include friends of friends and acquaintances of acquaintances. We discuss how this affects enforcement possibilities. The Indian self-help groups described in chapter 2 are a kind of credit cooperative. In India, chit funds, a kind of commercialized ROSCA, are run as businesses by managers...

The Group Lending Methodology

Access to finance via groups is not new. The example of ROSCAs in chapter 3 shows how groups function to give participants access to a pot of communal money, and credit cooperatives similarly function to allow members to obtain loans from their peers. The place of groups in microfinance, however, strengthens and extends earlier uses of groups although not without some added costs . To see this, we describe Grameen-style group lending. The model has been adapted in different contexts, but...

Why Doesnt Capital Naturally Flow to the Poor

Worm Rig Walleye Rig

From the viewpoint of basic economics, the need for microfinance is somewhat surprising. One of the first lessons in introductory economics is the principle of diminishing marginal returns to capital, which says that enterprises with relatively little capital should be able to earn higher returns on their investments than enterprises with a great deal of capital. Poorer enterprises should thus be able to pay banks higher interest rates than richer enterprises. Money should flow from rich...