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Balancing flexibility and discipline in microfinance: Innovative financial products that benefit clients and service providers

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  • Michael Hamp
  • Carolina Laureti

Abstract

Product innovation in microfinance is aimed at responding to the variety of poor clients’ needs, i.e. to develop and sustain the offer of a range of client-led products. The paper describes innovative market-oriented products that combine flexibility features with financial discipline. Those are microsavings, microcredit and microinsurance products and come from microfinance institutions worldwide. This review shows that service providers are introducing various types of flexibility into financial contracts; and that flexibility combined with appropriate enforcement mechanisms may enhance clients’ discipline. We notice, however, that flexibility may require information-intensive lending technologies, raising the MFIs’ costs of screening and monitoring clients, and have a limited outreach.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/98728/1/wp11044.pdf
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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 11-044.

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Length: 34 p.
Date of creation: Oct 2011
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/98728

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Related research

Keywords: product flexibility; discipline; commitments; microfinance;

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References

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  1. Jessica Schicks, 2010. "Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-048, ULB -- Universite Libre de Bruxelles.
  2. Jeon, Doh-Shin & Menicucci, Domenico, 2010. "When Is the Optimal Lending Contract in Microfinance State Non-Contingent?," IDEI Working Papers 599, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Weill, Laurent, 2010. "Do Islamic banks have greater market power?," BOFIT Discussion Papers 2/2010, Bank of Finland, Institute for Economies in Transition.
  4. Michal Bauer & Julie Chytilová & Jonathan Morduch, 2008. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2008/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2008.
  5. Manuel Amador & Iván Werning & George-Marios Angeletos, 2006. "Commitment vs. Flexibility," Econometrica, Econometric Society, Econometric Society, vol. 74(2), pages 365-396, 03.
  6. Dean Karlan & Margaret McConnell & Sendhil Mullainathan & Jonathan Zinman, 2010. "Getting to the Top of Mind: How Reminders Increase Saving," Working Papers, Economic Growth Center, Yale University 988, Economic Growth Center, Yale University.
  7. Nava Ashraf & Dean S. Karlan & Wesley Yin, 2005. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," Working Papers, Economic Growth Center, Yale University 917, Economic Growth Center, Yale University.
  8. Marek Hudon & Anaïs Périlleux, 2010. "What Explains Microfinance Distribution Surplus? A Stakeholder-oriented Approach," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-045, ULB -- Universite Libre de Bruxelles.
  9. Armendáriz, Beatriz & Szafarz, Ariane, 2011. "On mission drift in microfinance institutions," MPRA Paper 31041, University Library of Munich, Germany, revised 2010.
  10. Ximena Cadena & Antoinette Schoar, 2011. "Remembering to Pay? Reminders vs. Financial Incentives for Loan Payments," NBER Working Papers 17020, National Bureau of Economic Research, Inc.
  11. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  12. Masahiro Shoji, 2010. "Does Contingent Repayment in Microfinance Help the Poor During Natural Disasters?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 191-210.
  13. Gharad Bryan & Dean Karlan & Scott Nelson, 2010. "Commitment Devices," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 2(1), pages 671-698, 09.
  14. Marc Labie, 2009. "Microfinance : évolutions du secteur, diversification de produits et gouvernance," Reflets et perspectives de la vie économique, De Boeck Université, De Boeck Université, vol. 0(3), pages 5-6.
  15. Alexander Tedeschi, Gwendolyn, 2006. "Here today, gone tomorrow: Can dynamic incentives make microfinance more flexible?," Journal of Development Economics, Elsevier, vol. 80(1), pages 84-105, June.
  16. Ashraf Nava & Karlan Dean & Yin Wesley, 2006. "Deposit Collectors," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(2), pages 1-24, March.
  17. Copestake, James, 2007. "Mainstreaming Microfinance: Social Performance Management or Mission Drift?," World Development, Elsevier, vol. 35(10), pages 1721-1738, October.
  18. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, December.
  19. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October.
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Citations

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Cited by:
  1. Schicks, Jessica, 2014. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," World Development, Elsevier, vol. 54(C), pages 301-324.
  2. Müller, Kirsten & Musshoff, Oliver & Weber, Ron, 2014. "The more the better? How collateral levels affect credit risk in agricultural microfinance," DARE Discussion Papers 1402, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
  3. Jessica Schicks, 2011. "From a supply gap to a demand gap? The risk and consequences of over-indebting the underbanked," Working Papers CEB, ULB -- Universite Libre de Bruxelles 11-046, ULB -- Universite Libre de Bruxelles.

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