LITERATURE REVIEW ON MICROFINANCE

SUBMITTED BY
B.CHINDUJA
1. Effects of Financial Access on Savings by Low-Income People: Fernando
Aportelo, Bank of Mexico December 1999

This paper assesses the impact of increasing financial access on low-income people
savings. Effects on households’ saving rates and on different informal savings
instruments are considered. The paper uses an exogenous expansion of a Mexican
savings institute, targeted to low-income people, as a natural experiment and the 1992
and 1994 National Surveys of Income and Expenditures. Results show that the expansion
increased the average saving rate of affected households by more than 3 to almost 5
percentage points. The effect was even higher for the poorest households in the sample:
their saving rate increased by more than 7 percentage points in some cases. Furthermore,
the expansion, in general, had no effect on high income households. In the case of
informal savings instruments, evidence of crowding out of these instruments caused by
the expansion is limited. Results do not rule out the possibility that a considerable
fraction of the increase in households’ savings could have come from new savings.

2. Expanding Microenterprise Credit Access: Using Randomized Supply Decisions

to Estimate the Impacts in Manila: Dean Karlan, Jonathan Zinman July 2009

Microcredit seeks to promote business growth and improve well-being by expanding

access to credit. In this paper they use a field experiment and follow-up survey to
measure impacts of a credit expansion for micro entrepreneurs in Manila. The effects are
diffuse, heterogeneous, and surprising. Although there is some evidence that profits
increase, the mechanism seems to be that businesses shrink by shedding unproductive
workers. Overall, borrowing households substitute away from labor (in both family and
outside businesses) and into education. They also find substitution away from formal
insurance, along with increases in access to informal risk sharing mechanisms. Their
treatment effects are stronger for groups that are not typically targeted by micro lenders:
male and higher-income entrepreneurs. Results suggest that microcredit works broadly
through risk management and investment at the household level, rather than directly
through the targeted businesses.
3. Savings Constraints and Microenterprise Development: Evidence from a Field
Experiment in Kenya: Pascaline Dupas and Jonathan Robinson (March 2009)

Authours conducted a field experiment to test whether savings constraints prevent the
self-employed from increasing the size of their businesses. They opened interest-free
savings accounts in a village bank in rural Kenya for a randomly selected sample of poor
daily income earners. Despite the fact that the bank charged substantial withdrawal fees,
take-up and usage was high among women and the savings accounts had substantial,
positive impacts on their productive investment levels and expenditures. These results
imply that a substantial fraction of daily income earners face important savings
constraints and have a demand for formal saving devices

4. Outreach and Financial Performance Analysis of Microfinance Institutions in

Ethiopia : Befekadu B. Kereta (November 2007)

This paper attempted to look at MFIs performance in the country from outreach and
financial sustainability angles using data obtained from primary and secondary
sources.From financial sustainability angle, it finds that MFIs are operational sustainable
measured by return on asset and return on equity and the industry's profit performance is
improving over time. The study also identified no evidence of trade-off between outreach
and financial sustainability for Ethiopian case, rather positive correlation was observed
between them. the study has also identified various challenges that constrain MFIs from
efficient operations. And, different policy implication could be drawn from the findings
of this study. As women access is still limited, women's access to credit has to be
strengthened; Positive correlation between outreach and financial sustainability implies
that we could reach more client to attain social mission and as well we could be
profitable; finally MFIs in Ethiopia are profitable.
5. Microfinance Issues and Challenges in the Anglophone Caribbean: Mark Wenner
Geoffrey Chalmers (March 2001)
This paper describes the microenterprise and microfinance sectors of seven Caribbean
states, examines main constraints on the development of a well functioning microfinance
market in these countries, and highlights the amount, type, and results obtained in
microenterprise projects financed by the Inter-American Bank in the last fifteen years.
Examining why a certain industry has flourished more in one region than another always
involves analyzing many variables. In the case of microfinance, the explanatory factors
range from economic to regulatory to political and cultural. The result suggests that the
challenge is fourfold: how to improve knowledge of best practices in commercial
microfinance; how to formulate and implement policy reform; how to obtain a break-
through demonstration model; and how to introduce new financial products.
6. Financing Microfinance Institutions: Impacts on Organizational Strategy and
Performance : Knar Khachatryan(July 2010)
This paper focusing on the main philosophical and methodological implications of the
research which is interested in examining the financing side of Microfinance institutions
(MFIs) and demonstrating to what extent it influences their strategies. The research
design combining both quantitative and qualitative tools is described. Until recently,
much of Microfinance development has been focused on developing the asset side of
MFIs – their sources, programs and client portfolios- and very little attention has been
paid to the funding side of these institutions- who they are being financed and how they
acquire financial resources. The main implications of this research encompasses can be
grouped into the following twofold objectives:First, contribute to the enhancement of
MFIs role in financial development and strengthening the link between economic growth
and poverty alleviation. The more MFI strategy is oriented to its clients the higher is its
efficiency and profitability. Second, infer on indicators of social well-being and social
inclusion of the poor by contribution to social and economic development polices:
alleviation of poverty, enhancement of social well-being, selfemployment. This will help
to increase the role of the social impact of Microfinance.
7. Rural microfinance between clients and financial markets: Henk A.J. Moll and
Aad van Tilburg, Wageningen University
This paper focuses on microfinance in rural areas that are agrarian based and less densely
populated because access to microfinance services in these areas is still problematic. The
purpose of this paper is to provide an overview of experiences and challenges in the
efforts to expand the financial frontier of microfinance. It begins with a discussion of the
position of microfinance in the process of rural transformation in developing countries.
Expanding outreach by overcoming the specific difficulties related to providing services
in rural areas, and financial stability to safeguard the established financial relationships
thus become the objectives of successful rural microfinance institutions. The paper
concludes by examining the future of microfinance. It stresses the need for microfinance
institutions to broaden their objectives and focus on financial stability.
8. Does Capital Structure Affect the Financial Sustainability of Microfinance
Institutions: Vicki Bogan, Willene Johnson, and Nomathemba Mhlanga (July 2007)
This paper examines the existing sources of funding for Microfinance Institutions (MFIs)
by geographic region, and explores how changes in capital structure could facilitate
future growth and improve the financial sustainability of MFIs. Using data from more
than three hundred MFIs, They test the hypothesis that MFIs mature towards
sustainability through a “life cycle” of institutional development. The empirical evidence
fails to support interpretations of the life cycle approach that focus on MFI age as the
deciding factor in sustainability but points to the importance of capital structure and
funding instruments as key determinants of financial sustainability. While most
information on the capital structure of MFIs is highly fragmented, this paper attempts to
synthesize the information to better understand the link between capital structure and
sustainability. The result suggests that to address the capital constraint issues of most
MFIs, innovative financing and instruments will be required.
9. Microfinance in Australia, current realities and future possibilities:Ingrid
burkett,University of Queensland (May 2003)
This report provides an overview of the current realities of, and future possibilities for,
microfinance in Australia where microfinance is increasingly being referred to as a
mechanism for addressing poverty and social exclusion, particularly that relating to
financial exclusion. microfinance in Australia is in its infancy, there are some very
interesting practice examples of microfinance emerging in community organizations,
financial institutions such as credit unions and friendly societies, and welfare services
around the country. Australian microfinance initiatives can both learn from international
experiences, and can, in turn, contribute to the continued development of the
microfinance field locally and globally. The future of microfinance in Australia is full of
possibilities. However, if microfinance is indeed going to make a contribution to poverty
alleviation in Australia, there is a need for: more focussed research; greater levels of
support for experimentation with new models and approaches; and, further exploration of
current regulatory constraints and possible reforms.
10. Microfinance in Africa: Experience and Lessons from Selected African
Countries: Anupam Basu, Rodolphe Blavy, and Murat Yulek (September 2004)
This paper supports the view that microfinance institutions, especially those engaged in
full financial intermediation, complement effectively the banking sector in extending
financial services and successfully draw on the rich experience of community-based
development and preexisting informal methods of financial intermediation in Africa.The
existence and growth of cooperative banking and combined savings and credit
institutions in the microfinance sector in sub- Saharan Africa reflects the growing
demand for both savings and credit facilities. The group-based savings cum credit
institutions that are prevalent in Africa, like elsewhere, rely on peer pressure and joint
liability (rather than collateral) to ensure loan repayment. The main constraints to
developing the regulatory and prudential supervision framework are lack of bookkeeping
and reporting standards, internal controls, and credit decision mechanisms at the level of
the MFIs
11. NEW ZEALAND WOMEN & MICRO-FINANCE : Claire Massey & Kate
Lewis(2003)
The researchers gathered information on the situation in New Zealand by identifying
relevant printed material (research reports, academic articles and newspaper and
magazine articles) as well as by seeking the opinion of individuals involved at a policy or
practitioner level with the provision of services related to women and/or micro-finance.
The context for this review, which was commissioned by the Ministry of Women’s
Affairs in order to better understand the situation for New Zealand women with regard to
their access to micro-finance. The result is that ‘what is known’ about women and micro-
finance in New Zealand is dated, anecdotal and totally insufficient to provide an adequate
foundation for any policy development. This gap must be addressed if progress is to be
made.
12. Islamic Microfinance-A Case Study of Australia : Abu Umar Faruq Ahmad, A.
B. Rafique Ahmad (Journal of Islamic Economics, Banking and Finance)
The study offers an introduction to the emergence and development of Islamic
microfinance in Australia. It explains the key role of Islamic Microfinance
ServicesProviders (IMSPs) in Australia in fulfilling the microfinance needs of Muslim
community. It is limited in scope in a sense that it is not a comparative study of Islamic
financial system with doctrines of other religions, ideologies and systems. It concludes
that IMSPs in Australia can proliferate in microfinance if they gradually advance towards
undertaking more creative microfinance techniques to suit the financial needs of their
clientele to facilitate their desired contribution in microfinance.
13. Microfinance Enters the Marketplace: Elisabeth Rhyne and Robert Peck
Christen
This paper seeks to describe the dimensions and the nature of the changes now taking
place, with a focus on Bolivia, Chile, Paraguay, Bangladesh and Uganda, where the
emergence of the microfinance market is relatively advanced, The paper introduces new
entrants, including consumer credit institutions, private commercial banks, and
transforming state-owned development banks. It examines how MFIs respond to newly-
competitive conditions and new technologies. It conclude that the evolution of a
competitive microfinance market will lead to a wide range of changes. Some changes will
be welcome to those in the microfinance community, while others will not. It is clear is
that practitioners and supporters of the traditional microfinance community’s will have to
respond vigorously.
14. Public Policy on Microfinance in South America : Miguel Delfiner, Anabela
Gomez and Silvana Peron (June 2009)
The purpose of this paper is to analyze the impact of public policies in various countries
of South
America on the development of microfinance (MF). An analysis is made of best practices
recommended by international agencies, matching them against the existing framework
for microfinance activities in the countries analyzed. recent developments in MF in each
of the countries studied are analyzed, and an attempt is made to link them to the policies
applied and the existing regulatory frameworksThe main conclusion that can be drawn is
that despite the very varied nature of the initiatives pursued, one common element
observed in all the countries surveyed is the role played by commercial banks in MF
development.