Manfred Zeller

Repayment performance in group-based credit programs in Bangladesh: An empirical analysis

This paper analyzes the repayment rates of credit groups belonging to three group-based credit programs in Bangladesh: the Association for Social Advancement (ASA), the Bangladesh Rural Advancement Committee (BRAC), and the Rangpur Dinajpur Rural Service (RDRS). Hypotheses are drawn from economic theory relating group responsibility, and the resulting monitoring by peers, to a more effective enforcement of contractual obligations as well as to improved ability of the group as a whole to repay loans. Specific tests are performed on the following hypothesized determinants: group size, size of loans, degree of loan rationing, enterprise mix within groups, demographic characteristics, social ties and status, and occurrence of idiosyncratic shocks. Analysis is conducted using TOBIT maximum likelihood procedures. Implications for policy and institutional design are discussed.

Market access by smallholder farmers in Malawi: implications for technology adoption, agricultural productivity and crop income

In Malawi, maize is the major crop and food staple. Given limited off-farm employment opportunities, much-needed increases in household income for improving food security must come from gains in agricultural productivity through better technology and more profitable crops. In the past, hybrid maize and more recently, tobacco were promoted by policy for increasing smallholder income. An analysis of determinants of adoption of these two crops and related income effects is presented. Apart from factor endowment and exposure to agroecological risks, differences in the households access to financial and commodity markets significantly influence its cropping shares and farm income.

Determinants of credit rationing: A study of informal lenders and formal credit groups in Madagascar

Abstract Previous research on the determinants of credit rationing focused exclusively on the behavior of formal lenders who contract directly with an individual borrower. Based on survey data from Madagascar, this paper presents an analysis of credit rationing by informal lenders and by members of community-based groups that allocate formal group loans among themselves. The results show that group members are able to obtain and to use locally available information about the applicants creditworthiness in much the same way as informal lenders do. Both types of lenders use the applicants debt-servicing obligations and income as the main criteria for credit rationing. This paper therefore empirically confirms theoretical arguments that community-based groups have an information advantage over distant formal bank agents.

Many borrow, more save, and all insure: implications for food and micro-finance policy

Abstract Among policy makers, researchers and micro-finance practitioners alike, there is much discussion on the role of micro-finance for alleviation of poverty. This paper focuses on the linkages between access to credit, savings and insurance services and household food security. What is the role of micro-finance in the overall mix of policy instruments? What types of financial services are demanded by the poor, and which are offered by micro-finance institutions (MFIs)? Hence, which are the gaps in financial products? We present a conceptual framework that addresses these questions, and provide a synthesis of the empirical results of a multi-country research program in ten African and Asian countries. We conclude that insurance can be considered as the missing third of micro-finance during the 1990s, and that the MFIs outreach to the poor can be improved by offering savings, credit and insurance products that enhance the poors ability to bear risks. Applied research on the poors preferences as well as bold experimentation with new financial products appear to be particularly promising in making progress towards that goal. Since insurance services are difficult to be offered except for easily observable idiosyncratic risks, precautionary savings services can be a valuable insurance substitute in particular for the poorest.

Microfinance Poverty Assessment Tool

Currently, no rigorous tool exists to measure the poverty level of microfinance institution (MFI) clients. In order to gain more transparency on the depth of poverty outreach, CGAP collaborated with the International Food Policy Research Institute (IFPRI) to design and test a simple, low-cost operational tool to measure the poverty level of MFI clients relative to nonclients. This tool is a companion piece to the CGAP Appraisal Format; donors should not use the poverty assessment tool without also conducting a larger institutional appraisal. The concept of poverty is complex and strongly influenced by local cultural and socioeconomic conditions. The poverty assessment approach presented in this manual supports a flexible definition of poverty that can be adapted to fit local perceptions and conditions of poverty. The tool is intended neither as a means to target new clients nor to assess the impact of microfinance services on the lives of existing clients. It may provide a useful means to verify-both for the donor and the MFI-the extent to which an existing strategy results in poor clients joining the MFI. The tool assesses the poverty levels of MFI clients compared to nonclients within the operational area of an MFI. Using available data or expert opinion, the tool also relates local poverty levels to poverty measured at larger regional and national levels.

Relative importance and determinants of landowners' transaction costs in collaborative wildlife management in Kenya: an empirical analysis

Abstract Collaborative management of protected areas—which involves state agencies, local communities and other stakeholders—has been identified as a promising approach of organising nature conservation. However, as a complex governance structure, co-management can be expected to involve considerable transaction costs for the participating stakeholders. Empirical studies concerning the quantification of these costs are still scarce. Against this background, this paper empirically analyses the relative importance and the determinants of the landowners’ transaction costs arising from collaborative wildlife management, taking two wildlife sanctuaries in Kenya as examples. The empirical data presented in this paper was collected in the wildlife dispersal areas of Shimba Hills National Reserve and Amboseli National Park in Kenya. The results of this study show that—as compared to other cost categories—the landowners’ transaction costs incurred in wildlife co-management were relatively low. They also indicate that the magnitude of the transaction costs incurred by landowners is influenced by the attributes of transactions; bio-physical and ecological characteristics of the resource systems; landowners’ characteristics such as their human, social and financial forms of capital; losses resulting from human–wildlife conflicts; tenure security and benefits from conservation. Comparing the results of a two-stage least squares regression model of landowners’ characteristics of the two wildlife sanctuaries, it was found that the level of significance and the sign of most variables are not the same for both areas. This indicates that it is a specific combination of local factors that influences the transaction costs borne by the landowners.

Placement and Outreach of Group-Based Credit Organizations: The Cases of ASA, BRAC, and PROSHIKA in Bangladesh

Abstract The implicit but widespread assumption regarding nongovernmental financial institutions in Bangladesh has been that they are indeed placed in special poverty-stricken areas. Is this assumption valid? If not, what factors affect programs placement across communities? Using thana-level data to analyze the geographic placement of three credit programs in Bangladesh, this paper provides evidence that branches tend to be located in poor pockets of relatively well-developed areas than in remoter, less developed regions. Client density of established branches does not exhibit such a feature and actually tends to be better in less advantageous locations.

Improved tree fallows in smallholder maize production in Zambia : do initial testers adopt the technology?

In eastern Zambia, population growth has reduced per-capita land availability to such an extent that traditional bush fallows can no longer be practiced, and low soil fertility is a major constraint to crop production. Improved fallows (IF) based on leguminous trees are a low cash-input agroforestry practice to restore soil fertility. The objective of the study reported here was to assess the adoption of IF by farmers who tested the technology, including the extent to which the technology is practiced relative to its potential scale. The socioeconomic and agroecological determinants of the incidence and scale of adoption are estimated using a two-stage Heckman regression model that corrects for sample selection bias. Seventy-five percent of the testers have adopted the technology, which shows that IF are a suitable practice under conditions of capital scarcity, inadequate access to markets for fertilizer, and relatively low population density, which prevail in large parts of southern Africa. Adopters practice the technology to 42% of its potential scale; a non-linear relationship was found between wealth and the incidence as well as the scale of adoption; land and labor availability limit further expansion. Hence, future on-farm research should emphasize IF options which reduce land and labor requirements such as intercropping IF species with maize, and IF species which can be seeded directly.

Creating political capital to promote devolution in the forestry sector—a case study of the forest communities in Banyumas district, Central Java, Indonesia

In recent years, devolution of forest management to local communities has become a major policy trend in developing countries. The term devolution is used here to refer to the transfer of responsibility and authority over natural resources from the state to non-governmental bodies at the local level (Meinzen-Dick and Knox 2001, p. 42). Devolution policies aim to address institutional problems that have been identified as major reasons behind the degradation and misuse of forest resources in developing countries such as state property and centralized management of forest resources, corruption in the forestry administration, lack of effective monitoring, and enforcement and deficient incentives for the local communities (McCarthy 2000a; Ligon and Narain 1999; Wibowo and Byron 1999). Different mechanisms have been identified in the relevant literature on the subject by which devolution can lead to a more sustainable forest management in terms of equity, efficiency, and environmental sustainability: the creation of incentives by a fair and democratic distribution of benefits; the creation of accountability; the reduction of transaction costs; the mobilization of local knowledge; the strengthening of local institutions for sustainable resource management; and — in view of a low state capacity — the limitation of the role of the state to the provision of enabling frame conditions and the protection of public interests (compare Ribot 2002, Meinzen-Dick et al. 2001, Birner and Wittmer 2000; World Bank 1997). However, the empirical evidence on the effects of devolution in the forestry sector has been mixed (Banerjee 1997, Meinzen-Dick et al. 2001, Ribot 2002), which implies a need for more theoretical and empirical research on devolution.

Credit rationing of rural households in China

Purpose - In the presence of credit rationing the poor are unable to exploit growth-promoting opportunities. Using data gathered from a household survey on North China Plain, the purpose of this paper is to find pervasive rationing in the highly regulated formal credit market in rural China. The subsidized credit policies favor local elites instead of the targeted poor strata and earmarked credit programs are less effective. By jointly estimating credit rationing in both the formal and informal sectors, this paper elaborates on the fragmented rural credit market in China where different borrower segments are systematically sorted out across different loan types. Non-targeted credit programs cannot address income redistribution or sustainable poverty reduction in the presence of such skewed equality and equity. Design/methodology/approach - The basis of this study is a multi-topic household survey data on rural households in the North China Plain, with 337 rural households being randomly sampled out of five purposely selected counties. The particular objectives are to identify the determinants of credit rationing in both formal and informal sectors, to show the extent of credit rationing by using Probit model, to explore the substitutability of institutional and informal lending by using bivariate probit specification. Findings - First, there exists pervasive rationing in the highly regulated formal credit market in rural China. Second, the subsidized credit policies favor local elites, instead of the targeted poor strata; and the earmarked credit programs are less effective. Third, informal credits, in a form of reciprocal arrangement, are weak substitutes for institutional loans. Different segments of borrowers are systematically sorted out across different loan types; the rural credit market is fragmented. Fourth, government-led credit programs are not effective in promoting agricultural investments; credits of rural non-farm activities facilitate agricultural transformation. Originality/value - Since 2004, the policymakers in China initiated a set of policies towards promoting agricultural and rural development to spur the rural economy and ease tensions in rural area. Credit policies, believed often to be efficient and guided tools to provide financing to investors, gained a great deal of appeal. Given the widely existing failure of government-driven rural credit programs in many other developing countries, how the interventions affect the rural economy in China should be investigated. However, little has been done to explore the interventions on smallholder farmers and the existing evidence is therefore pieced and anecdotal. This paper aims to fill that gap.