Daniel Makina

Impact assessment of microfinance programmes, including lessons from Khula Enterprise Finance

This article discusses approaches to impact assessment of microfinance programmes through a survey of empirical literature and findings of an impact study of Khula Enterprise Finance, a South African wholesale finance institution that facilitates access to financial services by small, medium and microenterprises. The article notes that impact assessment has now opened up to the needs of a mix of stakeholders and a wide range of purposes. There has been a shift from a donor-driven approach to a practitioner-led approach that emphasises learning and improving practice. Nevertheless, findings of an impact study of Khula Enterprise Finance, a characteristically donor-driven type of study, indicate a positive impact on the beneficiaries of microfinance, especially women in rural areas where they are specifically targeted. Furthermore, the impact study shows that lower-income communities in rural areas have benefited less than their not-so-poor counterparts in the urban areas, an observation that is consistent with findings in other studies.

Mean reversion and structural breaks in real exchange rates: South African evidence

The paper tests for mean reversion, that is, purchasing power parity (PPP), in the bilateral real exchange rate series of the South African rand against those of the dollar, the pound sterling, the euro and the yen, these being the currencies of the countrys main trading partners. The relevance of considering structural breaks in PPP tests is demonstrated. Using standard unit root tests without considering structural breaks, one is unable to reject the null hypothesis of a unit root in the exchange rate series. The additive outlier model clearly demonstrates the importance of multiple sudden structural breaks and supports the stationarity of the rands bilateral real exchange rates. As expected the innovative outlier model, which seeks to suggest gradual shifts, only identifies a limited number of breaks and does not support mean reversion.

Econometric analysis of bank lending and business cycles in South Africa

This article examines econometric relationships between bank lending and business cycle in South Africa. Two long-run economic relationships are hypothesized between total credit and the variables, namely, coincidental indicators, spread between lending and borrowing rates, money supply, stock price index, inflation and banking sector specific factors included in the model. Of these variables, only coincident indicators, changes in money supply as well as capital, and reserve are found to exert some influence on short-run total credit availability.

Historical Perspective on Zimbabwe’s Economic Performance A Tale of Five Lost Decades

The paper presents a chronological unravelling of the political economy of Zimbabwe. It commences by giving an analysis of economic performance within a framework of four periods, namely, (i) the pre-independence period, (ii) the post-independence period of controls, (iii) the economic liberalization period and (iv) the economic crisis period. It proceeds to discuss the deterioration in economic performance emanating from inappropriate macroeconomic policies followed post-independence. The role of the monetary policy regime in exacer-bating macroeconomic instability is also highlighted. Furthermore, the system of governance is noted to be another significant contributory factor to economic decline. One important insight from the analysis is that the economy had been operating sub-optimally throughout the post-independence period, a factor which is often ignored in research on Zimbabwe. Furthermore, if we take into account the lacklustre performance during the pre-independence period when it was under international sanctions, Zimbabwe could be said to have had ‘five lost decades’ –the 1960s, the 1970s, the 1980s, the 1990s and the decade commencing in the year 2000.

Account ownership and use of financial services among individuals: Evidence from selected Sub-Saharan African economies

Purpose - The purpose of this paper is to understand the effect of individual characteristics (such as sex, age, education and income) on the likelihood of account ownership and use in selected Sub-Saharan African (SSA) economies. Account use is operationalized into two constructs namely the use of account to save and the frequency of account use. Design/methodology/approach - Data from 18,000 individuals from 18 SSA economies are used for the analysis. These data are sourced from the World Bank’s Global Findex database. Simple probit and selection models are employed as econometric tools. Findings - Account ownership and use is found to be higher among males, middle aged, high income and educated individuals. The marginal effect of income and education is most pronounced suggesting more policy attention is required in respect of the two factors. Practical implications - Due to causality issues between financial inclusion and income, addressing the plight of the poor in financial inclusion projects will be a continuing challenge for policy makers. Originality/value - It supplements the dearth of econometric studies conducted on the topic. Furthermore, regional specific factors affect the generality of results which calls for such type of studies.

Are the determinants of banks’ and insurers’ capital structures homogeneous? Evidence using South African data

Abstract This paper investigates the factors that determine capital structures of financial firms using two separate samples of banks and insurance companies and draws comparisons therefrom. It utilizes two samples of 16 South African banks and 26 South African insurance companies for the period 2006–2015. The relationship between leverage and firm-level determinants of capital structure is tested for each sample. The results show that the standard firm-level determinants of capital structure empirically observed on non-financial firms also apply for banks and insurers. Confirming the fundamental differences between banks and insurance companies, the study observed that the 2007–2009 global financial crisis (GFC) have a negative impact on capital structures of banks (meaning that they deleverage during crises). In contrast, the GFC was found to have a positive impact on capital structures of insurance companies (meaning, unlike banks, they leverage during crises). We find that banks and insurers have target capital structures. Banks adjust to this target at an adjustment speed of 44%, whereas insurers adjust at a lower rate of 21%. In conclusion, the paper finds both commonalities and fundamental differences between the capital structures of banks and insurers.

Are the Determinants of Bankss and Insurerss Capital Structures Homogeneous? Evidence from South Africa

The paper investigated the factors that determine capital structures of financial firms using two separate samples of banks and insurance companies and drew comparisons therefrom. It utilized two samples of 16 South African banks and 26 South African insurance companies for the period 2006-2015. The relationship between leverage and firm level determinants of capital structure was tested for each sample. The results showed that the standard firm level determinants of capital structure empirically observed on non-financial firms also apply for banks and insurers. The 2007–2009 global financial crisis (GFC) was found to have negatively affected the financial structures of banks and positively affected the financial structures of insurers. We found that banks and insurers have target capital structures. Banks adjust to this target at an adjustment speed of 44% whereas insurers adjust at a lower rate of 21%.

The Finance Growth Link: Comparative Analysis of Two Eastern African Countries

Abstract This paper examines the finance growth link of two low-income Sub-Saharan African economies – Ethiopia and Kenya – which have different financial systems but are located in the same region. Unlike previous studies, we account for the role of non-bank financial intermediaries and formally model the effect of structural breaks caused by policy and market-induced economic events. We used the Vector Autoregressive model (VAR), conducted impulse response analysis and examined variance decomposition. We find that neither the level of financial intermediary development nor the level of stock market development explains economic growth in Kenya. For Ethiopia, which has no stock market, intermediary development is found to be driven by economic growth. Three important inferences can be made from these findings. First, the often reported positive link between finance and growth might be caused by the aggregation of countries at different stages of economic growth and financial development. Second, country-specific economic situations and episodes are important in studying the relationship between financial development and economic growth. Third, there is the possibility that the econometric model employed to test the finance growth link plays a role in the empirical result, as we note that prior studies did not introduce control variables.

Financial Inclusion in Selected Asian Countries: Evidence Using Dynamic Panel Data Analysis

The paper examines the determinants of financial inclusion across 26 Asian countries using GMM dynamic panel data analysis. The GMM dynamic panel estimators utilized are specifically designed to deal with the problems plaguing past studies of determinants of financial inclusion, namely, simultaneity bias and unobserved country specific effects. Our model shows that financial inclusion is significantly and positively related to its lagged value, GDP per capita and mobile infrastructure, and negatively but not significantly related to government borrowing and the percentage of rural population (a proxy for remoteness). The positive relationship between financial inclusion and mobile penetration has important policy implications in supporting technological initiatives to achieve financial inclusion.

Mean reversion and predictability of remittances: Evidence from selected developing countries

Purpose – The purpose of this paper is to examine the predictability of remittances in individual developing countries. It achieves this objective by testing for mean reversion (i.e. stationarity) in the monthly remittance series reported to the World Bank by 21 developing countries. Design/methodology/approach – Unit root tests on remittance time series are undertaken using three tests – the augmented Dickey-Fuller test, the Phillip-Peron test and the Kwiatkowshi, Phillips, Schmidt and Shin test. Stationarity of series in levels would indicate mean reversion and predictability of remittances. Findings – The paper finds significant evidence of mean reversion and hence predictability in remittance inflows in 17 developing countries. Practical implications – Remittance inflows, which have become an important source of external finance for many developing countries, are not random flows but a stable and predictable stream of financial flows. Originality/value – Prior research has focused on volatility of rem...