Jonathan Conning

Outreach, sustainability and leverage in monitored and peer-monitored lending

Abstract I study the contract design problem facing microfinance-lending organizations (MFOs) that want to maximize the impact and outreach of their lending activities to a target population of poor borrowers while remaining financially sustainable. Tradeoffs between outreach, sustainability and financial leverage are shaped by the endogenous monitoring and delegation costs that arise within a chain of agency relationships subject to moral hazard between borrowers, loan staff, MFO equity-owners, and outside investors. All else equal, sustainable MFOs that target poorer borrowers must charge higher interest rates, have higher staff costs per dollar loaned, and are less leveraged. Analysis of data for 72 MFOs tends to support the findings.

Community-Based Targeting Mechanisms for Social Safety Nets: A Critical Review

This paper interprets case studies, and theory on community involvement in beneficiary selection, and benefit delivery for social safety nets. Several considerations should be carefully balanced in assessing the advantages of using community groups as targeting agents. First, benefits from utilizing local information, and social capital may be eroded by costly rent-seeking. Second, the potential improvement in targeting criteria from incorporating local notions of deprivation, must be tempered by the possibility of program capture by local elites, and by the possibility that local preferences are not pro-poor. Third, performance may be undermined by unforeseen strategic targeting by local communities in response to national funding, and evaluation criteria, or by declines in political support.

Rural Financial Markets in Developing Countries

This review examines portions of the vast literature on rural financial markets and household behavior in the face of risk and uncertainty. We place particular emphasis on studying the important role of financial intermediaries, competition and regulation in shaping the changing structure and organization of rural markets, rather than on household strategies and bilateral contracting. Our goal is to provide a framework within which the evolution of financial intermediation in rural economies can be understood.

Why Isn't There More Financial Intermediation in Developing Countries?

This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.

Freedom, Servitude and Voluntary Labor

We present an economic framework to revisit and reframe some important debates over the nature of free versus unfree labor and the economic consequences of emancipation. We use a simple general equilibrium model in which labor can be either free or coerced and where land and labor will be exchanged on markets that can be competitive or manipulated or via other non-market collusive arrangements. By working with variants of the same basic model under different assumptions about initial economy-wide factor endowments and asset ownership we can compare equilibrium distributional outcomes under different institutional and contractual arrangements including markets with free labor and free tenancy, slavery, and tenancy arrangements with tied labor-service obligations. Analysis of these different contractual and organizational forms yields insights that accord with common sense, but that are often overlooked or downplayed in academic debates, particularly amongst economists.