microfinance and financial inclusion · microfinance and financial inclusion jonathan morduch new...
TRANSCRIPT
![Page 1: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/1.jpg)
Microfinance and Financial Inclusion
Jonathan MorduchNew York University
4th IMF Statistical ForumNovember 2016
![Page 2: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/2.jpg)
4 statistical views
1. People reached: Microcredit Summit
2. Profit/finance: MIX Market database
3. Social and economic impact: RCTs
4. Financial lives: Financial Diaries
![Page 3: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/3.jpg)
Microfinance as an institutional successMillions of microfinance customers. Microcredit Summit Campaign.
https://stateofthecampaign.files.wordpress.com/2015/11/figure-1_growth-of-total-and-total-poorest-borrowers_en-full.png
![Page 4: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/4.jpg)
Customers: Asian, female, not poorestMicrocredit Summit Campaign 2015
54%90% 45%
![Page 5: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/5.jpg)
• Database includes 3845 institution-years, reflecting 291 million borrower-years.
• Biased toward commercially-focused lenders.
• Sample: 1335 institutions 2005-9.
• Most recent data on MFIs between 2005 and 2009:
– 930 institutions
– 80.1 million borrowers.
• Access to proprietary data
![Page 6: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/6.jpg)
The Microfinance Business Model:Enduring Subsidy and Modest Profit
Joint work with Robert Cull, World Bank
Asli Demirgüç-Kunt, World Bank
![Page 7: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/7.jpg)
A major accomplishment:Innovation to reduce cost per customer
Operating expense per borrower, PPP$
0300
60
0900
1200
15
00
PP
P$
0 1 2 3 4 5
NGO (n=307)
Bank (n=65)
NBFI (n=279)
Average loan balance /
GNI p.c. for the poorest 20%
![Page 8: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/8.jpg)
Large and durable tension:Small transaction sizes mean high cost per unit transacted
Operating expense per dollar lent
020
40
60
80
100
Opera
ting c
ost
per
dolla
r (c
ents
)
0 1 2 3 4 5
NBFI (n=380)NGO (n=446)
Bank (n=82)
Average loan balance /
GNI p.c. for the poorest 20%
![Page 9: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/9.jpg)
Response: raise prices on the low-endAverage real interest rates
01
020
30
40
50
60
0 1 2 3 4 5
Yield on gross loan portfolio (real)
NGO (n=446)
NBFI (n=380)
Bank (n=82)
Perc
ent
Average loan balance /
GNI p.c. for the poorest 20%
![Page 10: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/10.jpg)
What institutions report% of institutions that are profitable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Unadjusted (OSS) MIX adjustments(FSS)
US prime rate US prime rate +2 Prime rate Prime rate +2
Profit as reported by institution. No adjustment for subsidy, explicit or implicit
![Page 11: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/11.jpg)
Profit
Accounting profit: Is revenue (including grant income) greater than expenses?
Economic profit: Is business income greater than expenses (valued at the opportunity cost of inputs)
Q: Would institution earn profit if they operated the same waybut had to pay the market rate of capital?
![Page 12: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/12.jpg)
What the MIX Market reports% of institutions that are profitable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Unadjusted (OSS) MIX adjustments(FSS)
US prime rate US prime rate +2 Prime rate Prime rate +2
Adjusted to account for cheap credit. Opportunity cost of capital is deposit rate. No adjustment to equity.
![Page 13: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/13.jpg)
Our adjustments
Subsidy =
Opportunity costs for equity capital
- Profit before tax
+ Adjusted in-kind subsidy
+ Opportunity costs for loan capital (opp. cost of capital - actual paid rate)
Preferred opp cost of capital = local prime rate
![Page 14: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/14.jpg)
What economics/finance suggests% of institutions that are profitable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Unadjusted (OSS) MIX adjustments(FSS)
US prime rate US prime rate +2 Prime rate Prime rate +2
Adjusted to account for cheap credit. Opportunity cost of capital is prime rate + . Adjustment to equity too.
![Page 15: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/15.jpg)
Younger institutions (under 10 years)Percentage profitable, n=284
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
oss fss fss_usprime0 fss_usprime2 fss_prime0 fss_prime2
![Page 16: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/16.jpg)
Older institutions (10 years +)Percentage profitable, n=680
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
oss fss fss_usprime0 fss_usprime2 fss_prime0 fss_prime2
![Page 17: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/17.jpg)
Subsidy is badly allocated
(from a social perspective)
![Page 18: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/18.jpg)
Fairly flat: Subsidy per dollar lentγ=local prime (obs = 972)
Subsidy
per dollar0
.1.2
.3.4
.5.6
0 1 2 3 4 5Avg Loan Balance per borrower / GNI per capita for the poorest 20%
NGO NBFI Bank
obs# NGO:363, NBFI:303, Bank:71 (but showing if als_20<5 only)
Subsidy per dollar
![Page 19: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/19.jpg)
Upward sloping: Subsidy per borrowerγ=local prime
0100
200
300
400
500
600
700
800
$
0 1 2 3 4 5
Avg Loan Balance per borrower / GNI per capita for the poorest 20%
NGO NBFI Bank
obs# NGO:364, NBFI:303, Bank:71 (but showing if als_20<5 only)
Subsidy per borrower
![Page 20: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/20.jpg)
Simple subsidy math
Loan size
Subsidy per dollar
lent
Implicitsubsidy per loan
NGO $200 20% $40
Bank $1400 10% $140
![Page 21: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/21.jpg)
Bottom line: Subsidy per borrowerAlternative cost of capital = local prime interest rate
Most recent observations 2005-2009
Mean25th
percentile Median75th
percentile ObsFull sample 132 0 26 102 1002
For-profit 178 0 14 107 365Bank 275 20 93 417 72NBFI (for-profit) 201 0 22 117 221
Not-For-profit 108 0 32 98 629NGO 101 3 23 75 371NBFI (non-profit) 133 10 51 147 92
Adjustment for market returns to equity
Small High
![Page 22: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/22.jpg)
Subsidy and gender: by institutionWomen receive less subsidy than men
010
20
30
40
ce
nts
0 20 40 60 80 100
% of customers that are female
NGO (n=358)
NBFI (n=284)
Bank (n=46)
0500
1000
1500
2000
0 20 40 60 80 100
Subsidy per dollar
% of customers that are female
NGO (n=275)
Bank (n=40)NBFI (n=225)
Subsidy per borrower
$
![Page 23: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/23.jpg)
Modest subsidy, modest impacts
![Page 24: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/24.jpg)
25%
60–65%
10–15%
BancoSol, Bolivia (1996)
25%
25%
50%
Basix, India (2002)
Expert views: what to expect?
![Page 25: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/25.jpg)
SpandanaBanerjee, A. V., Duflo, E., Glennerster, R., & Kinnan, C. (2015). "The miracle of microfinance? Evidence from a
randomized evaluation," American Economic Journal: Applied Economics, vol 7(1): 22-53.
![Page 26: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/26.jpg)
Spandana (India) evaluationAbhijit Banerjee: “Assessing the Current Crisis in Microfinance and Avoiding the Next One”
• Spandana: Traditional microcredit program
– Group liability
– Weekly or monthly repayment
– Starting loan is Rs. 10,000 (~$250)
– Interest rate changed over the period but was around 12% per year (nondeclining balance; ~24% APR)
• Spandana was already a large MFI
• Not previously operating in Hyderabad.
• Agreed to randomly phase in operations in Hyderabad.
![Page 27: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/27.jpg)
Low loan take up
Impact on business
Spandana (India) evaluationAbhijit Banerjee: “Assessing the Current Crisis in Microfinance and Avoiding the Next One”
![Page 28: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/28.jpg)
But…
Per capita expenditure
Spandana (India) evaluationAbhijit Banerjee: “Assessing the Current Crisis in Microfinance and Avoiding the Next One”
![Page 29: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/29.jpg)
Impacts – an assessment
• Marginal (impacts on expanding to new customers)
– Gives little sense of infra-marginal impacts (impacts on existing, core customers)
– Not clear how to map from marginal to infra-marginal in same place, or from one place to another
![Page 30: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/30.jpg)
Financial Diaries
Household surveys that
track penny by penny
how poor households
in India, Bangladesh
and South Africa
manage their money.
![Page 31: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/31.jpg)
The poor face a “triple whammy”
Being poor isn’t just about low incomes
Low incomes
Irregular and
unpredictable
incomes
Lack of
appropriate
financial tools
![Page 32: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/32.jpg)
Biggest financial needsPortfolios of the Poor (2009)
3 needs that drive much of the financial activity:
1. Managing basics: Cash-flow management to transform irregular income flows into a dependable resource to meet daily needs
2. Coping with risk: Dealing with the emergencies that can derail families with little in reserve
3. Raising lump sums: Seizing opportunities and paying for big-ticket expenses by accumulating usefully large sums of money
![Page 33: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/33.jpg)
Are most loans for business investment?Evidence from Indonesia
Don Johnston and Jonathan Morduch, The Unbanked: Evidence from Indonesia. World Bank Economic Review 2008.
![Page 34: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/34.jpg)
Installment lending
53
52
“consumer loan”
“producer loan”
![Page 35: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/35.jpg)
Taking consumer finance seriously…
• Allows micro-lenders to serve people with jobs– hospital orderlies, nannies,
cooks, factory workers, drivers, agricultural laborers, construction workers, clerks, craft workers, and others.
• Allows micro-lenders to (openly) meet the wider needs of entrepreneurs.
![Page 36: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/36.jpg)
Summary
• Remarkable institutional success
• Not a widespread commercial success
• Not focused so sharply on the poor
• Modest impacts but modest subsidies
– Possibly favorable cost-benefit ratio
• Next steps: build from recognition of households’ broader financial needs, especially consumer finance/saving
![Page 37: Microfinance and Financial Inclusion · Microfinance and Financial Inclusion Jonathan Morduch New York University 4th IMF Statistical Forum November 2016. 4 statistical views 1. People](https://reader033.vdocuments.us/reader033/viewer/2022052023/60386688774fe96c3d24e56e/html5/thumbnails/37.jpg)
Thank you
www.financialaccess.orgwww.usfinancialdiaries.org