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 Study relating to materials testing Detecting damages in non-magnetic steel through magnetism
23.07.2018 | Technische Universität Kaiserslautern

nachricht Innovative genetic tests for children with developmental disorders and epilepsy
11.07.2018 | Christian-Albrechts-Universität zu Kiel

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: New interactive machine learning tool makes car designs more aerodynamic

Scientists develop first tool to use machine learning methods to compute flow around interactively designable 3D objects. Tool will be presented at this year’s prestigious SIGGRAPH conference.

When engineers or designers want to test the aerodynamic properties of the newly designed shape of a car, airplane, or other object, they would normally model...

Im Focus: Robots as 'pump attendants': TU Graz develops robot-controlled rapid charging system for e-vehicles

Researchers from TU Graz and their industry partners have unveiled a world first: the prototype of a robot-controlled, high-speed combined charging system (CCS) for electric vehicles that enables series charging of cars in various parking positions.

Global demand for electric vehicles is forecast to rise sharply: by 2025, the number of new vehicle registrations is expected to reach 25 million per year....

Im Focus: The “TRiC” to folding actin

Proteins must be folded correctly to fulfill their molecular functions in cells. Molecular assistants called chaperones help proteins exploit their inbuilt folding potential and reach the correct three-dimensional structure. Researchers at the Max Planck Institute of Biochemistry (MPIB) have demonstrated that actin, the most abundant protein in higher developed cells, does not have the inbuilt potential to fold and instead requires special assistance to fold into its active state. The chaperone TRiC uses a previously undescribed mechanism to perform actin folding. The study was recently published in the journal Cell.

Actin is the most abundant protein in highly developed cells and has diverse functions in processes like cell stabilization, cell division and muscle...

Im Focus: Lining up surprising behaviors of superconductor with one of the world's strongest magnets

Scientists have discovered that the electrical resistance of a copper-oxide compound depends on the magnetic field in a very unusual way -- a finding that could help direct the search for materials that can perfectly conduct electricity at room temperatur

What happens when really powerful magnets--capable of producing magnetic fields nearly two million times stronger than Earth's--are applied to materials that...

Im Focus: World record: Fastest 3-D tomographic images at BESSY II

The quality of materials often depends on the manufacturing process. In casting and welding, for example, the rate at which melts solidify and the resulting microstructure of the alloy is important. With metallic foams as well, it depends on exactly how the foaming process takes place. To understand these processes fully requires fast sensing capability. The fastest 3D tomographic images to date have now been achieved at the BESSY II X-ray source operated by the Helmholtz-Zentrum Berlin.

Dr. Francisco Garcia-Moreno and his team have designed a turntable that rotates ultra-stably about its axis at a constant rotational speed. This really depends...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Within reach of the Universe

08.08.2018 | Event News

A journey through the history of microscopy – new exhibition opens at the MDC

27.07.2018 | Event News

2018 Work Research Conference

25.07.2018 | Event News

 
Latest News

'Building up' stretchable electronics to be as multipurpose as your smartphone

14.08.2018 | Information Technology

During HIV infection, antibody can block B cells from fighting pathogens

14.08.2018 | Life Sciences

First study on physical properties of giant cancer cells may inform new treatments

14.08.2018 | Life Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>