Post on 26-Dec-2015
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Flexibility and Discipline
in MicrofinanceNovember 3, 2011
Carolina Laureti
CERMi (UMONS and ULB)
Co-Author: Michael Hamp (IFAD)
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Disciplining mechanisms encourage that payments are duly made on time (e.g., savings deposits, loan repayment, insurance premium)
E.g. Frequent and regular payment schedule Screening safer clients (Jain and Mansuri, 2003) Constant monitoring (Armendariz and Morduch, 2010) Reducing the temptation (Fisher and Ghatak, 2010) Increasing attention (Basu, 2008)
Disciplining mechanisms in microfinance should be poor-inclusive and cost-effective
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Flexible products serves for consumption smoothing and coping with shocks Easy-to-access loan from family in case of emergencies (Collins et
al., 2009) Informal sector provide partial insurance for the lower collateral
requirement (Boucher and Guirkinger, 2007) Contingent repayment helps during natural disaster (Shoji, 2010) Flexible loan payments help consumption smoothing (Czura et al.,
forthcoming) Flexible banking account are used for coping with shocks (Prina,
forthcoming)
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The PaperResearch question
Poor needs a mix of flexibility and discipline for better money management (Collins et al., 2009).
Research gap: which disciplining mechanisms could be associated to flexible financial products?
Methodology Literature review (donors reports, MFIs websites, articles,
news, mostly on the internet) 9 innovative financial products combining flexibility with
disciplining devices
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Disciplining mechanisms Information-intensive mechanisms
Intensify direct screening and monitoring of clients (Confianza, SafeSave, BAAC, IASC, Susu+BB)
The sanction
Play on the sanction, e.g. collateral, interest rate, fees for early withdrawal or prepayment (Confianza, Safesafe, BAAC, IASC, VSSU), reward (BRI)
Soft commitments
Support planning, reminders (Mamakiba)
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Costs for the MFIs Direct screening and monitoring Cash flow management Risk of staff fraud Arrears
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Conclusions Flexibility and discipline can match… The focus should be on creating innovative disciplining
mechanisms that works... The “sanction” is a key variable… Future research:
Clients preferences for various mix of flex and discipline Size of the penalty and risk-rationing Operative costs for MFIs. How much? Who pays?