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 Rutgers-led innovation could spur faster, cheaper, nano-based manufacturing
14.02.2018 | Rutgers University

nachricht New study from the University of Halle: How climate change alters plant growth
12.01.2018 | Martin-Luther-Universität Halle-Wittenberg

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: Attoseconds break into atomic interior

A newly developed laser technology has enabled physicists in the Laboratory for Attosecond Physics (jointly run by LMU Munich and the Max Planck Institute of Quantum Optics) to generate attosecond bursts of high-energy photons of unprecedented intensity. This has made it possible to observe the interaction of multiple photons in a single such pulse with electrons in the inner orbital shell of an atom.

In order to observe the ultrafast electron motion in the inner shells of atoms with short light pulses, the pulses must not only be ultrashort, but very...

Im Focus: Good vibrations feel the force

A group of researchers led by Andrea Cavalleri at the Max Planck Institute for Structure and Dynamics of Matter (MPSD) in Hamburg has demonstrated a new method enabling precise measurements of the interatomic forces that hold crystalline solids together. The paper Probing the Interatomic Potential of Solids by Strong-Field Nonlinear Phononics, published online in Nature, explains how a terahertz-frequency laser pulse can drive very large deformations of the crystal.

By measuring the highly unusual atomic trajectories under extreme electromagnetic transients, the MPSD group could reconstruct how rigid the atomic bonds are...

Im Focus: Developing reliable quantum computers

International research team makes important step on the path to solving certification problems

Quantum computers may one day solve algorithmic problems which even the biggest supercomputers today can’t manage. But how do you test a quantum computer to...

Im Focus: In best circles: First integrated circuit from self-assembled polymer

For the first time, a team of researchers at the Max-Planck Institute (MPI) for Polymer Research in Mainz, Germany, has succeeded in making an integrated circuit (IC) from just a monolayer of a semiconducting polymer via a bottom-up, self-assembly approach.

In the self-assembly process, the semiconducting polymer arranges itself into an ordered monolayer in a transistor. The transistors are binary switches used...

Im Focus: Demonstration of a single molecule piezoelectric effect

Breakthrough provides a new concept of the design of molecular motors, sensors and electricity generators at nanoscale

Researchers from the Institute of Organic Chemistry and Biochemistry of the CAS (IOCB Prague), Institute of Physics of the CAS (IP CAS) and Palacký University...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

2nd International Conference on High Temperature Shape Memory Alloys (HTSMAs)

15.02.2018 | Event News

Aachen DC Grid Summit 2018

13.02.2018 | Event News

How Global Climate Policy Can Learn from the Energy Transition

12.02.2018 | Event News

 
Latest News

Basque researchers turn light upside down

23.02.2018 | Physics and Astronomy

Finnish research group discovers a new immune system regulator

23.02.2018 | Health and Medicine

Attoseconds break into atomic interior

23.02.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>