peer group formation in an adverse selection model this paper develops an adverse selection model where peer group systems are shown to trigger lower interest rates and remove credit rationing in the case where borrowers are uninformed about their potential partners and ex post state verification or auditing by banks is costly peer group formation reduces interest rates due to a collateral effect namely cross subsidisation amongst borrowers acts as collateral behind a loan by uncovering such a collateral effect this paper shows that peer group systems can be viewed as an effective risk pooling mechanism and thus enhance efficiency notjust in the full information set up a well known family of adverse selection models in the stiglitz and weiss 1981 tradition demonstrates that when banks are imperfectly informed about the riskiness of borrowers projects and therefore cannot discriminate against risky borrowers interest rates become inefficiently high and worthy borrowers are driven out of the credit market the extent of this problem is substantially magnified when borrowers do not have adequate collateral to secure a loan typically adverse selection combined with lack of collateral leads to prohibitively high interest rates poorly endowed individuals e g students immigrants the unemployed and a vast majority of poor individuals in developing countries often face such high rates and therefore cannot take advantage of profitable investment opportunities a peer group formation system represents a possible solution to the above problem under this system a bank lends to borrowers without collateral on condition that the borrowers organise themselves into groups and that participant borrowers within each group accept to take joint responsibility for a loan thus in addition to repaying their own share of the loan each group member must accept to repay the obligations of their defaulting peers otherwise the entire group is denied access to future refinancing systems of this kind have been very successful in practice they have generated lower interest rates for the rural poor in for example bangladesh the philippines bolivia and the state of arkansas in the united states moreover group lending has also been successfully implemented in large urban areas such in the cities of dhaka and chicago 1

does trade credit boost firm performance abstractsome firms have achieved good performance in developing countries where the financial sector is far from established one explanation in the literature is that these firms benefit from trade credit a form of informal financing using a survey of firms in china conducted by the world bank in early 2003 this article examines whether trade credit indeed boosts firm performance our ordinary least squares results show that trade credit is significantly and positively correlated with firm performance however using the instrumental variable approach to address endogeneity we find that the statistical significance disappears the results are robust to a series of robustness checks casting doubt on the claim that trade credit boosts firm performance

you can t save alone commitment in rotating savings and credit associations in kenya abstract this article examines one reason why individuals develop and maintain local level financial savings organizations known as rotating savings and credit organizations or roscas economic theories suggest that individuals form roscas to finance the purchase of a lumpy durable good in response to intrahousehold conflict over savings or to provide themselves with insurance the article proposes an additional hypothesis for rosca participation saving requires discipline and some roscas may be formed to provide a collective mechanism for commitment in the presence of time inconsistent preferences data from 70 roscas located in western kenya indicate that the commitment hypothesis is plausible and broadly consistent with the design and patterns of participation in these roscas as many rosca participants put it you can t save alone

the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

microfinance and home improvement using retrospective panel data to measure program effects on fundamental events summary rigorously estimating the effects of development programs is notoriously difficult we present a methodology that borrows from event studies commonly used in the finance literature in our retrafect methodology a retrospective panel dataset is created based on fundamental events in the history of surveyed households events that are discrete unforgettable and important to welfare we apply this methodology to examine home improvements among 1 672 households in guatemala india and ghana using village and country year level fixed effects we find the probability of a major housing improvement increases from 0 038 to 0 070 in the years subsequent to a first microfinance loan

evidence on the determinants of credit terms used in interfirm trade trade credit is created whenever a supplier offers terms that allow the buyer to delay payment in this paper we document the rich variation in interfirm credit terms and credit policies across industries we examine empirically the firm s basic credit policy choices whether to extend credit or to require cash payment and if credit is extended whether to adopt simple net terms or terms with discounts for prompt payment we also examine determinants of variations in two part terms results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness trade credit has important economic significance from both micro and macroeconomic perspectives during the 1990s vendor financing has accounted for an average 1 5 trillion of the book value of all assets of u s corporations and has represented approximately 2 5 times the combined value of all new public debt and primary equity issues during a given year as a component of the money supply trade credit in the form of accounts payable exceeds the primary money supply mi by a factor of 1 5 on average 1 clearly efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade credit financing several recent empirical studies examine determinants of firm reliance on trade credit 2 these studies model supply and demand for trade credit using financial statement data accounts receivable and payable 3 however many aspects of trade credit practice are unexplored most notably little is known about the types of credit terms e g net 30 2 10 net 30 and credit policies that are observed across firms and industries the only comprehensive doc

is grameen lending efficient repayment incentives and insurance in village economies many believe that a key innovation by the grameen bank is to encourage borrowers to help each other in hard times to analyse this we study a mechanism design problem where borrowers share information about each other but their limited side contracting ability prevents them from writing complete insurance contracts we derive a lending mechanism which efficiently induces mutual insurance it is necessary for borrowers to submit reports about each other to achieve efficiency such cross reporting increases the bargaining power of unsuccessful borrowers and is robust to collusion against the bank copyright 2004 wiley blackwell

group credit a means to improve information transfer and loan repayment performance information asymmetries plague credit markets in developing countries leading to selective rationing and market segmentation with adverse income distributional consequences for small borrowers data collected from the finca group credit programme in costa rica were used to study the viability and cost effectiveness of group credit as a means to transmit information on borrower creditworthiness groups that screened members and used local information had lower delinquency rates than those that did not however less than half the groups had positive rates of economic return suggesting that group lending may improve information flow but is a cost sensitive institutional design

credit union policies and performances in latin america this paper presents a conceptual framework for explaining credit unions cus loan delinquency and profitability in developing countries it also offers an empirical estimation for a unique sample of cus in latin america

enhancing capabilities through credit access creditworthiness as a signal of trustworthiness under asymmetric information article i nfo creditworthiness and trustworthiness are almost synonyms because under asymmetric information the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower we test the creditworthiness trustworthiness nexus in an investment game experiment on a sample of participants non participants in a microfinance program in argentina and find that trustors give significantly more to and believe they will receive more from microfinance borrowers the first and second order beliefs of trustees are also consistent with this picture our findings then show that mf participants appear more trustworthy and this may help microfinance to work a related consequence is that if and only if borrower s trustworthiness is not public information the mere loan provision acts as a reputation enhancing signal increasing the borrower s attractiveness as a business partner in such case we have a channel through which a private financial intermediary contributes to the provision of a public good like information thereby

financial development bank discrimination and trade credit non state owned firms in china grow tremendously with limited support from banks this provides a unique setting to test how firms in a country with poorly developed financial institutions fund their prosperous growth opportunities this paper compares the use of an important non formal financial channel trade credit between state and non state owned firms in china we find that compared to state owned firms non state owned firms use more trade credit we further show that this higher usage is primarily for financing rather than transactional purposes the results suggest that in a country with a poorly developed formal financial sector firms can support their growth through non formal financial channels that largely rely on implicit contractual relation

the effect of social capital on group loan repayment evidence from field experiments an important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending this research presents evidence from field experiments in south africa and armenia in which subjects participate in trust and microfinance games we present evidence that personal trust between group members and social homogeneity are more important to group loan repayment than general societal trust or acquaintanceship between members we also find some evidence of reciprocity those who have been helped by other group members in the past are more likely to contribute in the future during the past decade exploring the role that social capital plays in economic behaviour has emerged as one of the most fascinating and fertile areas of economic research although precise definitions of social capital are notoriously difficult to pin down one of the early pioneers of the concept coleman 1988 defines social capital as social structure that facilitates certain actions of actors within the structure in his definition coleman specifically highlights the roles of mutual obligation expectations and trustworthiness social norms social sanctions and the transmission of information important studies in both developed and developing countries have analysed the impact of social capital in economic relationships putnam s celebrated work making democracy work civic traditions in modern italy 1993 and bowling alone america s declining social capital 1995 brought attention to the role that social capital plays in the development of the modern state udry s ground breaking 1994 work in nigeria illustrated how the social capital existing in traditional societies may allow for more efficient credit contracts than in developed economies with weaker social

rural finance and agricultural technology adoption in ethiopia does the institutional design of lending organizations matter summary it has now become almost a stylized fact that sustained agricultural growth is central to rapid poverty reduction and economic development yet world poverty is largely concentrated in the agrarian societies which have the potential for agricultural productivity growth this is particularly true for sub saharan african countries where the gaps between potential and actual yields remain high minimizing this gap through the promotion of modern inputs such as fertilizer and modern seeds has been at the core of almost all development strategies in ethiopia among other initiatives the country has promoted microfinance institutions and member owned financial cooperatives to alleviate credit constraints of the smallholder farmers this paper analyzes the impacts of these institutions using household survey data and a propensity score matching technique we examine the effects that institutional financial services have on farmers adoption of agricultural technology in ethiopia the results suggest that access to institutional finance has a significant positive impact on both the adoption and extent of technology use however when impacts are disaggregated by type of financial institution and farm size heterogeneities are observed in particular financial cooperatives have a greater impact on technology adoption than microfinance institutions and the results appear to vary depending on farm size and types of inputs the paper concludes with implications for policies to promote adoption of modern agricultural inputs

an incentive compatible solution for trade credit term incorporating default risk abstract this paper studies the optimal trade credit term decision in an extended economic ordering quantity eoq framework that incorporates a default risk component a principal agent bilevel programming model with costs minimization objectives is set up to derive the incentive compatible credit term the supplier determines the credit term as the leader in the first level programming by balancing her his financing capacity with the retailer s default risk order behavior and cost shifting at the second level the retailer makes decisions on ordering and payment time by reacting on the term offered by the supplier a first order condition solution procedure is derived for the bilevel programming when credit term is confined within the practically feasible interval two key results are obtained the condition to derive incentive compatible credit term and an equation system to derive threshold default risk criterion filtering retailers suitable for credit granting numerical experiments show that the capital cost of the supplier is the most important factor determining the credit term default risk acts like a filtering criterion for selecting retailers suitable for credit granting empirical evidence supporting our theoretical considerations is obtained by estimating three panel econometric models using a dataset from china s listed companies

bank credit and trade credit evidence from natural experiments abstract prior studies find mixed evidence about the substitution relation between bank credit and trade credit in this paper using two bank interest rate deregulations in china we revisit the substitution hypothesis by examining how exogenous increases in the availability of bank credit affect trade credit we find that firms with higher credit risk increased their use of bank credit and reduced their use of trade credit after the 2004 bank interest rate ceiling deregulation whereas firms with lower credit risk increased their use of bank credit and reduced their use of trade credit after the 2013 bank interest rate floor deregulation our results provide supportive evidence for the substitution hypothesis that firms reduce their use of trade credit after the relaxation of bank credit and suggest that bank credit is more favorable short term financing than trade credit

an analysis of offer functions of banks and credit unions in guatemala economists have sought to identify institutions which might fill the gap in household access to credit arising from rationing by formal lenders credit unions have been identified as institutions which might use informational and monitoring advantages to fill that gap using information on household perceptions of their access to credit this article analyses the impact of certain credit unions on the access to credit of households in guatemala regression results indicate that credit unions serve markets unserved by formal lenders and that information on household perceptions of their access to credit is important in making inferences about lender lending activities

too small to be beautiful the farm size and productivity relationship in bangladesh this paper examines the agricultural productivity farm size relationship in the context of bangladesh features of bangladesh s agriculture help overcome several limitations in testing the inverse farm size productivity relationship in other developing country settings a stochastic production frontier model is applied using data from three rounds of a household panel survey to estimate simultaneously the production frontier and the technical inefficiency functions the correlated random effects approach is used to control for unobserved heterogeneous household effects methodologically the results suggest that the stochastic production frontier models that ignore the inefficiency function are likely mis specified and may result in misleading conclusions on the farm size productivity relationship empirically the findings confirm that the farm size and productivity relationship is negative but with the inverse relationship diminishing over time total factor productivity growth driven by technical change is found to have been robust across the sample across farm size groups the relatively larger farmers experienced faster technical change which helped them to catch up and narrow the productivity gap with the smaller farmers

moral hazard and peer monitoring in a laboratory microfinance experiment abstract this paper reports the results from a laboratory microfinance experiment of group lending in the presence of moral hazard and costly peer monitoring we compare peer monitoring treatments in which credit is provided to members of the group to individual lending treatments with lender monitoring we find that if the cost of peer monitoring is lower than the cost of lender monitoring peer monitoring results in higher loan frequencies higher monitoring and higher repayment rates compared to lender monitoring in the absence of monitoring cost differences however lending monitoring and repayment behavior is mostly similar across group and individual lending schemes within group lending contrary to theoretical predictions simultaneous and sequential lending rules provide equivalent empirical performance

bank discrimination holding bank ownership and economic consequences evidence from china abstract this paper finds that compared with chinese state owned firms non state owned firms have a greater propensity to hold significant ownership in commercial banks these results are consistent with the notion that because non state owned firms are more likely to suffer bank discrimination for political reasons they tend to address their financing disadvantages by building economic bonds with banks we also find that among non state owned firms those that hold significant bank ownership have lower interest expenses and are less likely to increase cash holdings but more likely to obtain short term loans when the government monetary policy is tight these results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times finally we find that non state owned firms with significant bank ownership have better operating performance overall we find that firms can reduce discrimination through holding bank ownership

the normalization of deviant organizational practices the non performing loans problem in china research on deviant organizational practices has demonstrated that normative and cognitive institutional forces contribute to making deviance acceptable data from a survey of 3 751 chinese firms were applied to test the idea that a clearly articulated alternative identity is necessary if a firm is to resist the normalization of deviance widespread acceptance of delinquency in repaying loans was shown to make it more likely that a firm adopts that practice but this normalization process is less likely for firms with a stronger anti deviance identity

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

accounting for slacks to measure and decompose revenue efficiency in the spanish designation of origin wines with dea abstract in this paper we show how data envelopment analysis dea may be used to measure and decompose revenue inefficiency taking into account all sources of technical waste in the context of an application to assess the spanish quality wine sector in particular designation of origin do wines we try to go beyond the standard approaches which use shephard distance functions or directional distance functions to provide decomposition that incorporates slacks as a source of technical inefficiency to accomplish this we will base our analysis on a recent approach introduced in cooper et al 2011a in particular we show how an output oriented version of the weighted additive model can be used to properly identify revenue technical and allocative inefficiencies in spanish dos in the application we conclude that the main source of revenue inefficiency in this sector is technical waste and that cava can be highlighted as the do that performs as a benchmark for more numbers of units

trade credit in economic fluctuations and its impact on corporate performance a panel data analysis from china trade credit is an important auxiliary measure to complete transactions in supply chains and it is also an important source of short term financing for companies this paper uses panel data for ch

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

managers and efficiency in banking abstract this paper presents evidence on the impact of managers on cost efficiency in banking stochastic frontier analysis is applied to a unique finnish data set manager age and education have strong yet complicated effects on efficiency the impact of age on efficiency depends on education a university degree is useful mainly in the largest banks of the sample educational background seems to be less important for young managers than for mature ones managing director changes are systematically followed by efficiency changes retirement typically causes an efficiency improvement whereas other manager changes can either improve or weaken efficiency however in many cases mature managers outperform their young colleagues

persistent parochialism trust and exclusion in ethnic networks decentralized groups such as close knit residential neighborhoods and ethnically linked businesses often achieve high levels of cooperation while engaging in exclusionary practices that we call parochialism we investigate the contribution of within group cultural affinity to the ability of parochial groups to cooperate in social dilemmas we analyze parochial networks in which the losses incurred by not trading with outsiders are offset by an enhanced ability to enforce informal contracts by fostering trust among insiders we show that there is a range of degrees of parochialism for which parochial networks can coexist with an anonymous market offering unrestricted trading opportunities

using repayment data to test across models of joint liability lending theories rationalising joint liability lending are rich in implications for repayment rates we exploit this fact to test four diverse models we show that the models repayment implications do not always coincide for example higher correlation of output and borrowers ability to act cooperatively can raise or lower repayment depending on the model data from thai borrowing groups suggest that repayment is affected negatively by the joint liability rate ceteris paribus and social ties and positively by the strength of local sanctions and correlated returns further the relative fit of the adverse selection versus informal sanctions models varies by region

do risky microfinance borrowers really invest in risky projects experimental evidence from bolivia abstractthis paper reports the results of an experiment testing a fundamental assumption in stiglitz and weiss 1981 model of credit rationing that defaulting borrowers are associated with investment in risky projects through an artefactual field experiment with 200 bolivian microfinance borrowers we observe that subjects from real world delinquent borrowing groups do not prefer risky projects to safer ones significantly more than subjects from repaying groups instead our results support more recent behavioural theories of credit market failure implications are that defaulting microfinance borrowers may be those who take too little investment risk rather than those who take too much

optimal partial group liability in microfinance lending abstract this paper develops a model of group borrowing that incorporates partial group liability where borrowers are penalized if their group members default but are not held responsible for the entirety of the failed loan the model illustrates a trade off of group liability lending while higher levels of group liability increase within group risk sharing if liability is too high borrowers strategically default the model predicts the existence of an optimal partial liability that maximizes transfers between group members while avoiding strategic default consistent with this prediction loan officers from a large microfinance institution in southern mexico who rarely allow one group member to repay while the other defaults achieve substantially lower default rates than loan officers for whom the practice is commonplace or for those for whom it has never occurred structural estimation using repayment data suggests that while a partial liability below full liability may reduce default rates the incidence of strategic default is rare

does religion matter to informal finance evidence from trade credit in china informal finance plays an important role in transitional economies with weak legal institutions such as china as a major informal finance instrument trade credit relies on informal institutions

group lending with sequential financing contingent renewal and social capital this paper focuses on the dynamic aspects of group lending in particular sequential financing and contingent renewal we examine the efficacy of these two schemes in harnessing social capital we find that for the appropriate parameter configurations there is homogenous group formation so that the lender can ascertain the identity of a group without lending to all its members thus screening out bad borrowers partially moreover under certain parameter configurations negative assortative matching occurs as a robust phenomenon

delegated monitors large and small germany s banking system 1800 1914 banks play a greater role in the german financial system than in those of the united states or britain germany s large universal banks are admired by those who advocate bank deregulation in the united states others admire the universal banks for their supposed role in corporate governance and industrial finance many discussions distort the german banking system by overstressing one of several types of banks and ignore the competition and cooperation between the famous universal banks and other banking groups tracing the historical development of the german banking system from the early nineteenth century places the large universal banks in context

who gets credit the behavior of bureaucrats and state banks in allocating credit to chinese state owned enterprises abstract using a sample of chinese state owned enterprises spanning 1980 to 1994 we investigate the factors that determine the sources of finance for firm level fixed investment including retained earnings bank finance and government transfers direct government transfers were not significantly associated with profitability throughout the period in contrast bank finance was positively linked to both profitability and some types of reform reforms that enabled managers to self select and thus expose themselves and their employees to greater risk were positively associated with acquiring bank finance the association between bank finance and profitability weakened in the 1990s as banks increasingly assumed bailout responsibility

asset restructuring strategies in bank acquisitions does distance between dealing partners matter abstract one of the most lively debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transaction based products at the expense of small and informationally opaque borrowers these changes may be the result of two distinct restructuring strategies pursued by the acquirer with respect to the asset portfolio of the acquired bank a cleaning strategy cs in which the acquirer makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank and a portfolio strategy ps in which the acquiring bank permanently changes the portfolio allocation of the acquired bank in this paper we focus on italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997 2003 moreover we distinguish acquisitions according to their geographic diversifying character and to the physical and cultural distances that separate acquiring from acquired banks when we look at the mean value we do not find clear evidence of a primacy either of css or pss when we separate in market from out of market bank acquisitions however results show that the css prevail only in the former type of deals while in the latter the portfolio of acquired banks is subject to pss finally we find that differences in asset restructuring strategies can be explained by differences in corporate culture and the workplace environment of the dealing partners

banking structure and industrial growth evidence from china abstract the debate on the puzzling relationship between financial development and economic growth in china has remained inconclusive because the effects of banking ownership structure and size structure are highly intertwined in the existing studies this paper addresses this problem by specifying an empirical model to disentangle the two structural effects the analysis uses a data set that includes the banking sector and 28 manufacturing industries across 30 chinese provinces over the period 1999 2007 in order to identify the channel through which banking structure affects industrial growth two interactive variables are constructed to capture the interaction of the prevailing banking structure with labor intensity and the share of non state owned enterprises in each industry respectively the regression results are robust and make the case for the ongoing banking reforms to reduce state ownership and promote small banking institutions

thy neighbor s keeper the design of a credit cooperative with theory and a test economists now appreciate that resource allocation in less economically developed economies is profoundly influenced by non firm economic institutions however our theories of non firm institutions often suggest different answers to many questions including those of policy this paper illustrates a method for discriminating between alternative theories using data from german credit cooperatives from the nineteenth and early twentieth century germany we build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteenth century data authors

a within farm efficiency comparison of silvopasture systems with conventional pasture and forestry in northeast argentina agroforestry which has multiple inputs and outputs would benefit from scrutiny of economic efficiency because levels of adoption have not met expectations previous literature estimated the efficiency of agricultural systems using data envelopment analysis however the vast variability between farms makes comparing systems difficult this study uses paired within farm comparisons of silvopasture a combination of planted trees and pasture to conventional cattle ranching and plantation forestry to evaluate the relative technical efficiency silvopasture proves to be more efficient than conventional cattle ranching forestry demonstrated increasing returns to scale cattle raising demonstrated decreasing returns to scale for large scale farmers and silvopasture was intermediate jel d24 o13

microfinance and investment a comparison with bank and informal lending summary comparing the impact of different types of credit on households investment in bangladesh we find that loans from microfinance institutions are likely to be channeled toward non agricultural activities while both informal and bank lending are associated to a higher expenditure in agricultural inputs estimated effects are net of the differences in the amount borrowed interest rates and collateral results suggest that features which are specific to microfinance such as tight repayment schedules and land based eligibility rules may reduce the suitability of this source of funds for the farming sector

technical efficiency and farm size a conditional analysis the relationship between technical efficiency and size might be affected by farm heterogeneity we analyse this relationship conditional on a set of control variables these control variables are chosen using a production model where technical efficiency is introduced as a parameter as a result technical efficiency affects both the input demand and the output supply of a profit maximising producer the empirical application explores these issues using panel data of dairy farms in spain

policies and impact an analysis of village level microfinance institutions this paper uses variation in policies and institutional characteristics to evaluate the impacts of village level microfinance institutions in rural thailand to identify impacts we use policies related to the successful unsuccessful provision of services as exogenous variation in effective financial intermediation we find that institutions particularly those with good policies can promote asset growth consumption smoothing and occupational mobility and can decrease moneylender reliance specifically cash lending institutions production credit groups and especially women s groups are successful in providing intermediation and its benefits to members while buffalo banks and rice banks are not the policies identified as important to intermediation and benefits the provision of savings services especially pledged savings accounts emergency services and training and advice surprisingly much publicized policies such as joint liability default consequences or repayment frequency had no measured impacts jel 012 016

contract structure risk sharing and investment choice few microfinance funded businesses grow beyond subsistence entrepreneurship this paper considers one possible explanation that the structure of existing microfinance contracts may discourage risky but high expected return investments to explore this possibility i develop a theory that unifies models of investment choice informal risk sharing and formal financial contracts i then test the predictions of this theory using a series of experiments with clients of a large microfinance institution in india the experiments confirm the theoretical predictions that joint liability creates two potential inefficiencies first borrowers free ride on their partners making risky investments without compensating partners for this risk second the addition of peer monitoring overcompensates leading to sharp reductions in risk taking and profitability equity like financing in which partners share both the benefits and risks of more profitable projects overcomes both of these inefficiencies and merits further testing in the field

local financial development and the trade credit policy of italian smes we investigate the relation between local financial development and trade credit in an integrated financial market our results suggest that trade credit complements the formal finance of small and medium sized enterprises smes at the local level provincial banking development in italy increases the provision of trade credit by smes and stimulates the redistribution of loans via trade credit however cooperative banking reduces the use of trade credit at the local level evidence shows that lower levels of provincial banking development are linked with a stronger decline in trade credit at the start of the global financial crisis we also find that smes in provinces with industrial districts use more trade credit our results confirm that local differences in banking development and the trade credit policy of smes within countries matter adding to earlier findings that the provision of trade credit is complementary to the development of financial institutions at the country level

measuring and explaining scale efficiency with the parametric approach the case of greek tobacco growers estimates of technical and scale inefficiencies of tobacco farms in greece during the period 1991 1995 are obtained by using the parametric approach the degree of technical efficiency was found to be lower than the degree of scale efficiency and thus a greater portion of overall inefficiency is due to producing below the production frontier than to producing at an inefficient scale in addition the vast majority of farms in the sample exhibited suboptimal scale implying that output should be expanded to reach the optimal scale empirical results are provided to determine the impact of various socioeconomic demographic and geoclimatic indicators on technical and scale efficiency

can social cohesion be harnessed to repair market failures evidence from group lending in guatemala the success of group lending in developing countries has been attributed to the ability of the institution to mitigate asymmetric information problems in credit markets previous research has offered a number of explanations for this phenomenon social ties between borrowing group members internal group pressure to repay loans and peer monitoring this research presents empirical tests on borrowing group data from guatemala which indicate that peer monitoring significantly effects borrowing group performance through stimulating intra group insurance group pressure is found to have a small effect in deterring moral hazard while the effect of social ties among members is statistically insignificant

the impact of mobile financial services usage on microfinance delinquency abstractthis paper studies the impact of mobile financial systems usage on microcredit delinquency ratios in tunisia by using either a two part model or matching econometric procedures our large dataset contains all of the administrative registers that belong to the six branches of enda the incumbent institution leader in tunisia we find a significant reduction of 4 92 days of late repayment for an average user of mfs in an environment where 15 of loans have been paid late at least once we foresee a tremendous opportunity to improve the mfis repayment ratios and consequently provide microcredit customers with more financing for income generating activities

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

group lending under asymmetric information abstract this paper examines joint liability loan contracts as part of a screening mechanism adopted by lenders using group lending schemes a model and one period game are introduced in order to analyze the type of optimal loan contracts that emerge when lenders have less information than borrowers it is shown that under imperfect information lenders may be able to utilize joint liability contracts as a means of screening agent types by inducing endogenous group formation and self selection among the borrowers

bank firm relationships and allocative efficiency in northeastern and central italy and in the south abstract we make two contributions on the extent and impact of relationship banking based on close and long lasting bank firm customer relationships in the three sub systems in which italy may be subdivided first we show that relationship banking is more extensive in both sub systems where small businesses prevail the fast growing northeast and center nec and the south the marginal area of dependent development second we demonstrate that relationship banking improves the allocation of credit in the nec but worsens it in the south this evidence suggests that relationship banking may be beneficial or detrimental depending on the socio economic structure

social efficiency of entry in a vertically related industry we provide a new perspective to the literature on social desirability of entry by showing that if the input supplier has market power social desirability of entry of the final goods producers depends on returns to scale entry in the final goods market can be socially insufficient under constant returns to scale technology but it can be socially excessive under decreasing returns to scale technologies if the cost of entry is low so that the final goods market is sufficiently competitive hence the anti competitive entry regulation policies are more justifiable if the final goods market is characterised by decreasing returns to scale technologies

redistribution in a decentralized economy growth and inflation in china under reform despite expanding at an annual rate of nearly 9 percent china s economy has exhibited a marked cyclical pattern periods of rapid growth accompanied by accelerating inflation are followed by contractions during which both growth and inflation fall a widening gap also emerged between the output contribution of the state sector and its share of investment and employment in this paper we offer a consistent explanation for this behavior that reflects several key institutional features of china s economic reform i economic decentralization ii the government s commitment to the state sector and iii the credit plan and credit control

counter cyclical substitution between trade credit and bank credit abstract this paper explores the substitution relationship between trade credit and bank credit and its counter cyclic dynamic pattern through economic cycles we propose a new theoretical model using a mechanism design method which predicts the substitution between the two credits and its counter cyclic behavior subject to the condition of technological efficiency not less than one this model also helps explain the somewhat contradictory evidence in the literature on the relationship between the two credits we present empirical evidence on the substitution effect and its counter cyclic behavior by using a balanced panel data set of 284 listed chinese companies for the period 1998 2006 we further find that the substitution behaves counter cyclically with respect to the coincident macroeconomic indicator namely gdp our empirical analysis also has some new features such as treating endogeneity carefully and incorporating the lag effect of trade credit coherently

group lending local information and peer selection this paper analyzes how group lending programs use joint liability to utilize local information that borrowers have about each other s projects through self selection of group members in the group formation stage these schemes are shown to lead to positive assortative matching in group formation faced with the same contract this makes the effective cost of borrowing lower to safer borrowers because they have safer partners conditional on success their expected dues to the lender are lower than that of riskier borrowers the resulting improvement in the pool of borrowers is shown to increase repayment rates and welfare q 1999 elsevier science b v all rights reserved

tying odysseus to the mast evidence from a commitment savings product in the philippines we designed a commitment savings product for a philippine bank and implemented it using a randomized control methodology the savings product was intended for individuals who want to commit now to restrict access to their savings and who were sophisticated enough to engage in such a mechanism we conducted a baseline survey on 1777 existing or former clients of a bank one month later we offered the commitment product to a randomly chosen subset of 710 clients 202 28 4 percent accepted the offer and opened the account in the baseline survey we asked hypothetical time discounting questions women who exhibited a lower discount rate for future relative to current trade offs and hence potentially have a preference for commitment were indeed significantly more likely to open the commitment savings account after twelve months average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group we conclude that the savings response represents a lasting change in savings and not merely a short term response to a new product

the life cycle of a microfinance institution the irish loan funds abstract ireland s loan funds were a long lived self sustaining large scale microfinance organization that made millions of loans without collateral to the poor during the first 100 years of their life cycle a period of growth ending in the 1840s they adapted constantly and obtained improvements to their legal structure because they were complementary to the banking system and seen as effective in relieving poverty in their 2nd century they became ossified in part because of competition with commercial banks the loan funds provide an example of sustainable microfinance under harsh economic conditions and illustrate how organizations change incrementally and when successful alter their institutional framework

liability structure in small scale finance evidence from a natural experiment microfinance the provision of small individual and business loans has witnessed dramatic growth reaching over 150 million borrowers worldwide much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending yet very little is known about the optimal contract structure of such loans there is substantial variation across lenders even within a particular setting this paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in india which shifted from individual to group liability lending the analysis finds compelling evidence that contract structure matters for the same borrower required monthly loan installments are 6 percent less likely to be missed under the group liability setting relative to individual liability in addition compulsory savings deposits are 19 percent less likely to be missed under group liability contracts

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

group lending sequential financing lender monitoring and joint liability abstract we develop a simple model of group lending based on peer monitoring and moral hazard we find that in the absence of sequential financing or lender monitoring group lending schemes may involve under monitoring with the borrowers investing in undesirable projects moreover under certain parameter configurations group lending schemes involving either sequential financing or a combination of lender monitoring and joint liability are feasible in fact group lending schemes with sequential financing may succeed even in the absence of joint liability though the repayment rate will be lower in the absence of joint liability however group lending with lender monitoring is unlikely to be feasible

trust and the provision of trade credit abstract state controlled listed firms in china receive preferential treatment when borrowing from commercial banks in contrast private controlled firms rely on informal finance and on trade credit we argue for and find evidence that private firms located in higher social trust regions use more trade credit from suppliers extend more trade credit to customers and collect receivables and pay payables more quickly these findings are enhanced for firms located in provinces with weak protection of property rights our results are robust to different measures of social trust legal environment and endogeneity overall our results show that social trust helps private firms overcome institutional difficulties in financing their activities

reciprocal supervision collusion and organizational design we study the design of supervisory functions in an organization with one principal and two agents each agent can perform supervision activities regarding the other agent we characterize the way the principal must structure incentive payments to avoid any collusive activity between agents in particular it is shown that better mutual information between agents may hurt the principal the other main result is the possibility that it may be better to give up one supervisory function or to have a third party be the supervisor if possible finally we show that such a dual supervisory structure raises the possibility that letting collusion happen may be the best policy

group lending and the role of the group leader this paper investigates strategic monitoring behavior within group lending we show that monitoring efforts of group members differ in equilibrium due to the asymmetry between members in terms of future profits in particular we show that the entrepreneur with the highest future profits also puts in the highest monitoring effort moreover monitoring efforts differ between group members due to free riding one member reduces her level of monitoring if the other increases her monitoring effort this effect is also at play when we introduce a group leader into the model the individual who becomes the group leader supplies more monitoring effort than in the benchmark case we empirically test the model using data from a survey of microfinance in eritrea and show that the group leader attaches more weight to future periods than nonleaders in the group which may explain why a large part of total monitoring is done by the leader

corporate trade credit and inventories new evidence of a trade off from accounts payable and receivable abstract trade credit is an important source of finance for firms and has been well researched but the focus has been on financial trade offs in this paper we consider the trade offs with inventories and develop a simple model that recognizes the incentives a firm faces to offer and receive trade credit our model identifies the response of accounts payable and accounts receivable to changes in the cost of inventories profitability risk and liquidity and importantly this influence operates through a production channel our results support the model and complement many existing studies focused on explaining the financial terms of trade credit

farm size productivity and returns to scale in agriculture revisited a case study of wine producers in south africa abstract the inverse relationship between farm size and productivity has almost become a stylised fact in the economic development literature most of the studies contributing to this preception have been flawed by methodological shortcomings and the request is that these studies be treated with caution using recent farm survey data from the wine producing areas of the western cape of south africa this study attempts to overcome some of the methodological problems distinguishing between partial and total productivity measures using data envelopment analysis most of the wine grape producers were found to operate under constant returns to scale co operative membership seemed to overcome the economies of scale associated with processing and marketing the inverse relationship between farm size and both land productivity and total factor productivity is weak not consistently negative and differs between regions thus caution must be used when advocating rural development policies based on the inevitability of an inverse relationship existing in all sectors and production regions of agriculture

the federal deposit insurance fund that didn t put a bite on u s tax payers abstract unlike the federal savings and loan insurance corporation and the bank insurance fund the national credit union share insurance fund ncusif survived the 1980s without falling into a state of accounting insolvency this paper analyzes how differences in incentive structure constrain the attractiveness of interest rate speculation and other risk taking opportunities to managers and regulators of credit unions despite these better incentives robust present value calculations establish that ncusif fell into economic insolvency during the mid 1980s besides calculating the extent of this insolvency the paper also seeks to explain why after ncusif became insolvent it could rebuild its reserves without an explicit or implicit taxpayer bailout our explanation turns on cross industry coinsurance responsibilities and the shallowness of the fund s observed insolvency relative to industry net worth we identify forces in the decisionmaking environment tending to limit the depth and duration of unresolved insolvencies at individual credit unions managerial opportunities to benefit personally from taking risks that would flow through to ncusif are constrained by difficulties in converting a credit union to stockholder form and by the intensity of proactive monitoring of troubled credit unions by sister institutions and other private coinsurers we conjecture that expanded use of coinsurance and private monitoring could reduce taxpayer loss exposure elsewhere in government deposit insurance systems