Microfinance for Entrepreneurial Development

Microfinance drew attention to itself beginning the day it was born. From day one, its fate was hotly debated by ever-colliding camps of ardent supporters and staunch critics. In this chapter, we provide an in-depth discussion on microfinance revolution and promise. We summarize the highlights of the growing literature on microfinance that have accumulated over the past three decades. The new features of the microfinance sector also are discussed in the chapter.

This chapter applies the Helmke–Levitsky typology of informal institutions to discuss how the interaction between the formal and informal institutional environment has shaped the development of China’s microfinance industry. The chapter shows that formal regulatory framework influenced commercial ‘for-profit’ microfinance providers (village and township banks or ‘VTBs’) and public interest microfinance providers (microcredit companies or ‘MCCs’) in different ways. While MCCs suffer deficiencies of not being able to accept savings deposits, VTBs are restricted by the inability to charge higher risk-adjusted interest rates. Geographical separation and low levels of out-group trust constrain the development of microfinance organisations, especially when the organisations do not have strong ties to local communities This study was approved by the appropriate university ethics committee and subsequently performed in accordance with the ethical standards in the 1964 Declaration of Helsinki. All persons gave their informed consent prior to inclusion in the study. Details disclosing the identity of the subjects under study have been omitted. The authors have full control of the primary data and have no financial relationship or conflict of interest with the organisations involved in the research.

Microfinance programmes worldwide are considered as one of the most effective tools to fight against poverty through financial and social inclusion. A wide range of studies acknowledges that microfinance is a successful mechanism to reach microentrepreneurs at the bottom of the pyramid, particularly women who are more vulnerable to many of the socio-economic, political, cultural, and environmental shocks and risks. Therefore, building their livelihood in a more sustainable way will help themselves as well as their household. In this context, we explore the role played by MFI in enterprise development and finance as well as its impact on income and employment of female entrepreneurs in rural India. The analysis draws on a case study of SKDRDP, one of the largest non-governmental (not-for-profit) MFI based in India. Specifically, to understand the outcomes of microfinance and enterprise intervention, in-depth interviews with female members of self-help groups promoted by SKDRDP-SIRI microenterprise units were carried out. The finding suggests that SKDRDP’s microfinance innovations through group enterprises with an ‘integrated approach’ have contributed in improving employment and income of female entrepreneurs in rural areas.

Entrepreneurial and business skills are widely recognized as important prerequisites for successful microbusiness entrepreneurship in developing countries and, therefore, loan repayment rates of microfinance institution (MFI) debtors. In the literature, it remains, however, unclear exactly what set of skills are most important. The present paper examines the extent to what microfinance debtors and loan officers agree on the relevance of various entrepreneurial and business skills for microbusiness performance and loan repayment. Results from two focus group discussions show that neither microfinance debtors nor loan officers agree on the ranking of skills. This suggests that microfinance debtors have specific needs for training and skills development, which, consequently, should be addressed on an individual basis. For loan officers to be effective in their duties of evaluating loan applications and supporting microfinance debtors, they need training to better understand the relevance of entrepreneurial and business skills for microfinance debtors’ loan repayment probabilities.

This paper is based on a KONDA ¹ Research and Consultancy ² survey conducted in May 2014 on 2607 people forming a representative sample of the Turkish population. It focuses on how people’s religious and political characteristics impact the independence of their decision making regarding saving and borrowing. An earlier study by Davutyan and Ozturkkal (2016) reports saving and borrowing decisions strongly correlate with income, education, marital status and region within country. Furthermore, 54% of those surveyed did not save and the main motivation for those who saved was to finance children’s education or home purchase. Religious people and those with a conservative lifestyle are less likely to borrow from family and friends. Older, married and working individuals are more likely to have difficulty paying back loans. According to the results of this survey, religious individuals are less likely to independently decide on their investment choices. Thus, religious people tend to make investment decisions together with family, elderly and respected relatives.

This chapter is about research carried out to examine the perceived impact of a No Interest Scheme (NILS) loan on the financial capability of people on low incomes in Queensland, Australia. Seventeen NILS participants who have completed repaying a NILS loan were interviewed to explore how participants used NILS, their attitude towards money, their money management style; the unfreedoms participants experienced; and the perceived impact of NILS loans on participants’ money management skills. We argue that in order for microfinance programs to achieve maximum benefit, building financial capability for their participants is as important as providing financial access. However, what the study reveals is that while participants acknowledge the usefulness of no interest loans, there is little evidence that such loans contribute to their overall financial capability.

Notwithstanding the mixed evidence, microfinance reduces poverty, vulnerability to health shocks and hastens recovery after a natural disaster. There are heterogeneous impacts in terms of women’s empowerment across households that vary with gender-defined social norms. Group lending attempts to overcome the dual problem of missing collateral and lack of intermediary capital. However, in recent years, there has been a shift towards individual lending contracts, in part a response to client complaints that group lending creates excessive peer pressure within groups. Shift of the focus to financial sustainability raises serious concerns about dilution of the outreach of microfinance (i.e. the number (breadth) and socio-economic level (depth) of the clients served by MFIs).That the trade-off exists is undeniable but little is known about its extent. However, retaining a non-profit charter signals commitments not to divert donated resources for personal gain. This may also help attract outside capital donations and prevent mission drift. Use of existing social networks between current and new microfinance clients may help reach out to the poor at a considerably lower cost than when such networks are not used. In sum, while the magic of microfinance has eroded with financial sustainability overriding social goals, there are ample grounds for optimism about resolving this trade-off.

Microfinance impact assessment is essentially a way of determining the effect of microfinance programme on the participants over a given period of time. However, the research approach and method to derive the effect vary. The positivists argue for the use of quantitative method to explain the reason for changes among microfinance programme beneficiaries. This is achievable by using statistical tests for explanation and prediction of the phenomena under study. This leads to generalisation of result such that the outcome of sample can be used to determine the result of the population. However, the interpretivists lend their work to the inductive strategies that meaningful microfinance impact assessment cannot be determined by using quantitative methods of data collection and analysis. Rather, a coherent and useful microfinance impact should be based on qualitative methods. It is recommended that future studies should strive for the use of mixed method such that both the qualitative and quantitative approaches are used in a single study.

Islamic microfinance is a specialized part in a growing and diverse body of microfinance literature. To date, there are quite a few papers on Islamic microfinance that are published in reputable journals, which fairly represent the size of Islamic microfinance industry compared to the overall microfinance sector. This chapter aims to provide an overview of Islamic microfinance in the context of mainstream microfinance sector and highlights some of the salient features that differentiate Islamic microfinance with conventional or overall microfinance. It will discuss the origin, different approaches in the development, and characteristics of Islamic microfinance. These will be followed by discussion on lending models, sources and uses of funds, and poverty impact of Islamic microfinance institutions. Finally, this chapter will conclude will some thoughts on possible opportunities for future Islamic microfinance research.

This chapter aims to evaluate productivity and determinants of productivity in microfinance institutions (MFIs) to support the ongoing debate on sustainability in the microfinance industry. Hence, the longitudinal data of 169 MFIs, covering the period from 2009 to 2014, were collected from the Microcredit Regulatory Authority annual reports in Bangladesh. This study used the two-stage semi-parametric approach. In the first stage, the Malmquist Productivity Index (nonparametric) was employed and it was found that the microfinance industry in Bangladesh observed an average of 3.6% productivity progress per annum, with a declining trend towards the end of the study period. In the second stage, the regression analysis (parametric) showed that institutional characteristics, macroeconomic factors and external sources of funds significantly affect productvity of MFIs. Findings and policy implications are further discussed.