Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Microfinance tied to economy

15.06.2010
A nation’s economy plays a surprisingly large role in the success or failure of microfinance – the practice of making small loans to farmers or business owners too poor to provide collateral, according to a study led by a Michigan State University economist.

The research, published in the Journal of Development Economics, is the first to examine the relationship between microfinance institutions and the larger economy. The findings could help lenders establish more successful microfinance operations, said Christian Ahlin, MSU associate professor of economics.

“What this helps us do is better understand which microbanks are successful throughout the developing world – and why,” Ahlin said.

The microfinance movement has “exploded” during the past two decades, he noted, with more than 100 million customers now borrowing small loans from more than 10,000 microfinance institutions around the world. The movement was thrust into the spotlight in 2006 when Grameen Bank, a Bangladesh microbank, and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize.

Ahlin and colleagues from New York University and the University of Minnesota examined the experiences of 373 microbanks worldwide. Because borrowers of microloans typically are third-world farmers or operators of tiny businesses in rural, isolated settings, it wasn’t clear how they are linked to the larger economy, he said.

Ahlin was surprised to find that as the larger economy grew, the microbanks’ profit margins grew as well, nearly one-for-one. For example, if the economic growth rate increased 5 percent, a typical microbank’s profit margin went up by 5 percentage points.

“The finding of this study is not that context is everything, but that it does help explain significant differences in performance of the microbanks,” Ahlin said.

According to the study, microbanks generally grow more successfully in countries with less of a manufacturing base, such as Nigeria and Mongolia, as opposed to more industrialized nations such as China and Indonesia. Ahlin said this is likely because manufacturing jobs tend to crowd out the more entrepreneurial-related jobs supported by microloans.

The researchers also found evidence that better developed governing institutions can impact microfinance business negatively – by driving up costs, for example – suggesting that borrowers may benefit from a hands-off regulatory approach.

Finally, microfinance institutions generally cover costs more easily in countries with a per-capita income of about $6,000 – or countries “that are not too poor, but not too rich either,” Ahlin said. In extremely poor countries, he said, there may be a lack of education to run a microenterprise and little demand for goods beyond basic food and medicine.

But that doesn’t mean lenders should steer clear of the most impoverished nations, Ahlin said. On the contrary: The research findings could help support the case for more sustained donor support of microfinance in those areas, he said.

“Although covering costs internally may be harder,” Ahlin said, “the impact could be greater in these poorer countries.”

Michigan State University has been advancing knowledge and transforming lives through innovative teaching, research and outreach for more than 150 years. MSU is known internationally as a major public university with global reach and extraordinary impact. Its 17 degree-granting colleges attract scholars worldwide who are interested in combining education with practical problem solving.

Christian Ahlin | EurekAlert!
Further information:
http://www.msu.edu

More articles from Studies and Analyses:

nachricht Real-time feedback helps save energy and water
08.02.2017 | Otto-Friedrich-Universität Bamberg

nachricht The Great Unknown: Risk-Taking Behavior in Adolescents
19.01.2017 | Max-Planck-Institut für Bildungsforschung

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Breakthrough with a chain of gold atoms

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

Im Focus: DNA repair: a new letter in the cell alphabet

Results reveal how discoveries may be hidden in scientific “blind spots”

Cells need to repair damaged DNA in our genes to prevent the development of cancer and other diseases. Our cells therefore activate and send “repair-proteins”...

Im Focus: Dresdner scientists print tomorrow’s world

The Fraunhofer IWS Dresden and Technische Universität Dresden inaugurated their jointly operated Center for Additive Manufacturing Dresden (AMCD) with a festive ceremony on February 7, 2017. Scientists from various disciplines perform research on materials, additive manufacturing processes and innovative technologies, which build up components in a layer by layer process. This technology opens up new horizons for component design and combinations of functions. For example during fabrication, electrical conductors and sensors are already able to be additively manufactured into components. They provide information about stress conditions of a product during operation.

The 3D-printing technology, or additive manufacturing as it is often called, has long made the step out of scientific research laboratories into industrial...

Im Focus: Mimicking nature's cellular architectures via 3-D printing

Research offers new level of control over the structure of 3-D printed materials

Nature does amazing things with limited design materials. Grass, for example, can support its own weight, resist strong wind loads, and recover after being...

Im Focus: Three Magnetic States for Each Hole

Nanometer-scale magnetic perforated grids could create new possibilities for computing. Together with international colleagues, scientists from the Helmholtz Zentrum Dresden-Rossendorf (HZDR) have shown how a cobalt grid can be reliably programmed at room temperature. In addition they discovered that for every hole ("antidot") three magnetic states can be configured. The results have been published in the journal "Scientific Reports".

Physicist Dr. Rantej Bali from the HZDR, together with scientists from Singapore and Australia, designed a special grid structure in a thin layer of cobalt in...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Booth and panel discussion – The Lindau Nobel Laureate Meetings at the AAAS 2017 Annual Meeting

13.02.2017 | Event News

Complex Loading versus Hidden Reserves

10.02.2017 | Event News

International Conference on Crystal Growth in Freiburg

09.02.2017 | Event News

 
Latest News

Biocompatible 3-D tracking system has potential to improve robot-assisted surgery

17.02.2017 | Medical Engineering

Real-time MRI analysis powered by supercomputers

17.02.2017 | Medical Engineering

Antibiotic effective against drug-resistant bacteria in pediatric skin infections

17.02.2017 | Health and Medicine

VideoLinks
B2B-VideoLinks
More VideoLinks >>>