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Impact analysis: does microcredit foster development?

July 18, 2013

SustainabilityA group of researchers recently published an impact analysis on microfinance in Mexico called Win Some Lose Some. The team of three researchers from UoM and NBER analyzed during close to three years the impact of microcredit on a broad series of outcomes for borrowers. The outcomes included in particular income, consumption, health, education, but also female decision-making power within the household and subjective measures of well-being. The methodology was a randomized controlled trial where one group received microcredit and one group (the control group) did not. To us, this is one of the most ambitious studies on the impact of microcredit and deserves attention.
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SME lending and the use of credit scoring

July 9, 2013

SustainabilityThe IFC recently organized a conference on SME lending (small and medium entreprises) in Sao Paulo. To us, there were three key conclusions from the series of presentations. First, SMEs cannot be attended by traditional banking channels. Second, they represent a large opportunities for revenues for banks. Finally, banks have the tools to analyze those clients and assess their risk. Innovative credit scoring and the use of big data are changing the way banks look at SME risk. SMEs play a vital role in the economy and are responsible for 40-60% of job creation in any given country, as we have written previously on this blog.

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Betting on banking correspondents in Mexico

July 1, 2013

SustainabilityThe Mexican regulator approved in 2009 the development of banking correspondents, or third parties – mostly small store owners –  to perform some types of financial transactions. This regulation was driven by the low level of financial inclusion in Mexico and inspired by similar regulations, in particular the Brazilian one. The simple observation was that bank branches did not have a large enough footprint to reach the entire population and other players could provide those services without compromising policy interests (e.g. anti-money laundering, deposit protection). Compartamos decided to create its network of correspondents, and launched a subsidiary called Yastas for that purpose. Where do we stand a few years after the regulation was drafted and what is the potential?

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Interest rates charged in microfinance: could they be lower?

June 24, 2013

A microentrepreneur in Mexico. Source: NYT

A recent study led by Yale/Dartmouth in collaboration with Compartamos (the largest microlender in Latin America) analyzes interest rates charged in microcredit in Mexico. The debate on interest rates in microlending has been fierce (see this older article from the NYT), as the product impacts a vulnerable part of the population with limited alternative when it comes to loans. Rates charged my microlenders in Mexico can range from 60% per year to over 200%, with an average at 78%, according to MBW. From the perspective of borrowers, lower rates can increase the potential demand for loans and financial inclusion, while excessive rates can push borrowers into over-indebtedness. From the perspective of microfinance institutions (MFIs), lower rates can make them more dependent on donors’ money while high rates can lead to higher regulatory scrutiny and attract the worst borrowers (adverse selection). The question around fair rates is therefore key to policymakers and MFIs. The study tried to answer two questions: how much do borrowers care about interest rates? How do lower rates impact the profitability of microfinance institutions? We also ask what drives lower interest rates charged by MFIs?
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Alternative stock exchanges to fund SMEs in Africa

June 20, 2013

Alternative stock exchanges are an innovation in the quest to access adequate financing for SMEs in Africa. The planned Ghana Alternative Market (GAX) for SMEs in Ghana and the Growth Enterprise Market Segment (GEMS) in Kenya will serve as pilots to test whether public listing can be an effective solution to the SME financing gap in Africa.

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An ambitious banking reform to increase financial inclusion in Mexico

June 14, 2013

Mexican National Palace (source: Wikipedia)

Mexico went through a political transition with the election of Enrique Pena Nieto (EPN) as president at the end of 2012, a candidate of the PRI. EPN promised an ambitious series of reforms together with the other two parties of the ruling coalition known as the Pact for Mexico, the PAN and the PRD. The recently announced Banking Reform is a flagship initiative for the government and is now being discussed in Congress. Its backdrop is the very low level of financial inclusion in Mexico. Credit to GDP amounts to ~28%, way below the average for Emerging Markets of 60%. Why is financial inclusion so low in Mexico, and what can the Reform change about it?

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Brazil adopts mobile banking

June 10, 2013

Brazilian Central Bank

The Brazilian government recently made the Central Bank the official regulator for mobile payment. The Central Bank now has 180 days to propose specific regulations that will define the characteristics of the segment. A research report from the IFC on mobile payment in Brazil shows that users rely on cell phones essentially for airtime recharge and store purchase. Other services (such as money transfers, utilities payments, remittences or balance inquiry), which are very popular in other countries, are either not yet available or not widely used. There are currently 260 million chips in Brazil, presenting a large potential for financial inclusion.
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