Dr. P.V. Viswanath

 

pviswanath@pace.edu

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Notes on The Economics of Microfinance by Beatriz Armendariz and Jonathan Morduch

 
 
  • Chapter 1: Rethinking Banking
  • Chapter 2: Why Intervene in Credit Markets?
 
 

 

Chapter 1: Rethinking Banking

Chapter 2: Why Intervene in Credit Markets?

  1. If moneylenders' interest rates are high, does that automatically mean that they are exploitative? What else is problematic about high moneylending rates, other than that they might be exploitative?
  2. The inability to access financial resources due to financial market failure (caused by information asymmetry and the lack of collateral) keeps many potential entrepreneurs from starting new businesses.  What are the findings of Paulson and Townsend (2004) regarding the impact of this market failure?
  3. Some people, such as Bhaduri (1973) promote microfinance as a solution to the high interest rates charged by moneylenders because of their monopoly power.  According to this, there may be no market failure.  How would your strategy to introduce microfinance differ if you believed the monopoly power theory as opposed to the market failure theory?
  4. Do high interest rates automatically imply monopoly and inefficiency?  Discuss the evidence on this question.
  5. One of the problems that rural entrepreneurs face in obtaining financing is that of lack of collateral.  In many countries, this is because farmers don’t have title to their lands.  What evidence is there that providing title to farmers might not resolve the problem of insufficient credit?
  6. Explain the adverse selection problem preventing lenders from lending to intending borrowers?
  7. Explain the ex-ante moral hazard problem preventing lenders from lending to intending borrowers?
  8. Explain the ex post moral hazard problem preventing lenders from lending to intending borrowers?
  9. What does the empirical evidence say about the relevance of moral hazard and adverse selection in the efficient operation of credit markets in developing countries?

Chapter 3:

  1. Typically, where borrowers do not have access to banks, there are two extremes of financial resource availability – one, where family members and relatives make loans to each other, and the second, where loans are available from moneylenders.  In what sense are Rotating savings and credit associations (ROSCAs) in the middle of this spectrum?
  2. What is the basic structure of a ROSCA?  Provide an example with numbers.
  3. Explain these three motives for why ROSCAs work – the early pot motive, the household conflict motive and the commitment to savings motive.
  4. Discuss the empirical evidence regarding how well ROSCAs work.
  5. What are the key elements of a credit cooperative?  How is a credit cooperative different from a ROSCA?
  6. How does microfinance go beyond ROSCAs and credit cooperatives?

Chapter 4:

  1. Describe the features of the original Grameen group lending model.
  2. Explain how adverse selection could be mitigated by group lending.
  3. Explain how adverse selection could be mitigated even if group members do not have superior information on the other members of the group.
  4. Explain the role of joint responsibility in how group lending is used to mitigate moral hazard problems.
  5. Explain the role of peer monitoring in resolving the problem of ex post moral hazard.
  6. Discuss the evidence from field studies on the effectiveness of group lending.
  7. What are some of the limits to group lending?