MICROFINANCE PUBLICATION ROUND-UP: Microfinance “Banana Skins” Risk Assessment; Effects of Microloans from Compartamos in Mexico; Youth Financial Inclusion Video

“Microfinance Banana Skins 2014: Facing Reality;” published by Centre for the Study of Financial Innovation; July 2014; 84 pages; available athttp://csfi.org/files/Microfinance_Banana_Skins_2014_-_WEB.pdf

This report, which is based on data collected by surveying 306 people associated with the microfinance industry, examines 19 risks faced by microfinance institutions (MFIs) across the globe. The major conclusion is that the foremost risk for MFIs is in the “day-to-day” challenges of operation, rather than the longer-term risks associated with product development, technological advancement and funding. Among the daily risks faced by MFIs, the one identified as the most pressing is the issue of clients’ overindebtedness. This problem, which is tied to an increase in the funding available to MFIs and an emphasis on growth over caution, is also related to credit risk, which is ranked second, and overall risk management, which is ranked fourth. The authors break down the survey responses according to geography and respondent type; the respondents represent six continents and include investors, observers, regulators, and support and service providers. While the majority of groups ranked overindebtedness as the top risk in the industry, other high-ranking risks include competition and institutional governance [1].

“Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment;” by Manuela Angelucci, Dean Karlan and Jonathan Zinman; published by Compartamos Banco; May 2014; 61 pages; available at http://karlan.yale.edu/p/Compartamos%20Impact%20AEJ-AE%20FINAL.pdf

This study seeks to evaluate the effects on communities in Mexico from group loans issued by Compartamos Banco. Compartamos Banco reports 2.3 million borrowers in Mexico, 71 percent of whom are women who borrow through Crédito Mujer, the loan product studied in this paper. The study involved surveying 16,000 households that were placed in either a treatment group (receiving credit from Compartamos) or a control group (receiving no credit). Those in the treatment group were asked about changes in microentrepreneurship, income, labor supply, spending, social status and subjective wellbeing before and approximately 27 months after the loans were disbursed, while those in the control group were surveyed on the same topics a single time. The recipients generally used the loans to address financial crises and invest in previously existing businesses. The authors find that expanded microfinance opportunities had modest positive effects on spending and the establishment or expansion of microenterprises, but did not have a statistically significant impact on the remaining indicators. Although there is limited evidence to support positive impacts, there is also little to indicate that microloans from Compartamos had negative impacts even on the people that saw the worst outcomes, such as loan payment default [2].

“MicroSave: Product Development for Youth;” video produced by MicroSave; June 2014; 4:23 runtime; available at https://www.youtube.com/watch?v=7x1hgaD_VlM

This video features Veena Yamini, a “responsible finance” expert for India-based microfinance consulting and training firm MicroSave, explaining how and why her company promotes the development of financial services targeted at youth. Among her arguments for MFIs to offer such services is that youth are more likely to stay loyal to financial institutions in their adulthood if they begin working with those companies in their adolescence. Secondly, these services not only have a financial effect, but they also impart social empowerment to youth. Ms Yamini goes on to identify various challenges posed by offering services to youth, such as the credit default risks posed by lending to adolescents and certain countries’ laws that make lending to minors difficult. She also remarks on the necessity, despite the difficulty, of financial institutions understanding the motivations and aspirations of adolescents in order to serve them effectively. Finally, she notes how incentives and support systems can result in success in including youth in savings and loan programs [3].

By Benjamin Krupp, Research Associate

Sources and Additional Resources

[1] Centre for the Study of Financial Innovation: Microfinance Banana Skins 2014

[2] Compartamos Banco: Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment

[3] MicroSave: Product Development for Youth

MicroCapital, May 20, 2014: Over-indebtedness in Mexico; Achieving Customer Centricity; Managing Over-indebtedness

MicroCapital, April 1, 2014: “Water, Sanitation and Microfinance Toolkit 1: Introduction to Opportunities in Water, Sanitation and Hygiene Finance,” Published by Water.org, MicroSave

MicroCapital, July 11, 2012: “Microfinance Banana Skins 2012: The CSFI Survey of Microfinance Risk;” by David Lascelles and Sam Mendelson; published by the Centre for the Study of Financial Innovation (CSFI)

MicroCapital Universe Profile: Centre for the Study of Financial Innovation (CSFI)

MicroCapital Universe Profile: Compartamos Banco

MicroCapital Universe Profile: MicroSave

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/