Making Sense of Microfinance

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Abhijit Banerjee's(MIT) presentation on Making Sense of Mircrofinance. Presented at the Microfinance Impact & Innovation Conference 2010.

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Making Sense of Microfinance

  1. 1. MAKING SENSE OF MICROFINANCE Abhijit Banerjee MIT and JPAL
  2. 2. THE PUZZLE  Marginal returns are high  Micro-loans are available but…  A lot of people don’t want them  Though they borrow from money lenders  Business growth is very limited.  Most microenterprises will ever have an employee  Loans don’t get paid down
  3. 3. LIMITS OF MICRO-CREDIT  The loans are not designed for risk-taking  Repayment starts immediately  There is no flexibility about time of payment  Zero tolerance of default  People do very different things when they take a micro-loan and when they get a “gift”  Does not seem to be the case  May be we need to look more closely
  4. 4. THE MISSING MIDDLE  What is the shape of the technology?  Is growing beyond a particular size hard?  Are the people who build very large firms special?  Or is it just that you have to cross some threshold to get going?  What happens if you don’t expect to be able to cross the threshold?
  5. 5. P R I O K K+ 1 Overall Return Marginal Return Figure 1: Marginal and Average return
  6. 6. P R I O P’ Figure 2: Two Technologies
  7. 7. R I O Q P R Figure 3: Combining Technologies and the S-Shape of entrepreneurship
  8. 8. THE RELUCTANT ENTREPRENEUR  May be being an entrepreneur is not what people aspire to.  Perhaps it is a way to “buy” a job.  Especially a job for your wife that allows her to keep minding the children and cooking the meals.  This why the business never grows—she has no time for it. It is not intended to grow  This is why De Mel, Mackenzie and Woodruff find what they find for women  Do women actually always want the opportunity?
  9. 9. MY GUESS  All three stories probably have something to them  The next frontier of microfinance research will be to figure out which of these stories is most right  And how to respond to what we learn.

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