The microfinance revolution has allowed more than 150 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance. The idea that providing access to reliable and affordable financial services can have powerful economic and social effects has captured the imagination of policymakers, activists, bankers, and researchers around the world; the 2006 Nobel Peace Prize went to microfinance pioneer Muhammed Yunis and Grameen Bank of Bangladesh. This book offers an accessible and engaging analysis of the global expansion of financial markets in poor communities. It introduces readers to the key ideas driving microfinance, integrating theory with empirical data and addressing a range of issues, including savings and insurance, the role of women, impact measurement, and management incentives. This second edition has been updated throughout to reflect the latest data. A new chapter on commercialization describes the rapid growth in investment in microfinance institutions and the tensions inherent in the efforts to meet both social and financial objectives. The chapters on credit contracts, savings and insurance, and gender have been expanded substantially; a new section in the chapter on impact measurement describes the growing importance of randomized controlled trials; and the chapter on managing microfinance offers a new perspective on governance issues in transforming institutions. Appendixes and problem sets cover technical material.
The Economics of Microfinance s e c o n d
e d i t i o n
Beatriz Armendáriz Jonathan Morduch
The Economics of Microfinance
The Economics of Microfinance Second Edition
Beatriz Armendáriz and Jonathan Morduch
The MIT Press Cambridge, Massachusetts London, England
© 2010 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. For information about special quantity discounts, please email
[email protected] mit.edu. This book was set in Palatino by Toppan Best-set Premedia Limited. Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Armendáriz, Beatriz. The economics of microfinance / Beatriz Armendáriz and Jonathan Morduch.— 2nd ed. p. cm. Includes bibliographical references and index. ISBN 978-0-262-01410-6 (hardcover : alk. paper)—ISBN 978-0-262-51398-2 (pbk. : alk. paper) 1. Microfinance. I. Morduch, Jonathan. II. Title. HG178.3.A76 2010 332—dc22 2009034760 10 9 8 7 6 5 4 3 2 1
A Georges-Antoine, Mikhaela y Eduardo. Con amor. To Amy, Leon, Joseph, and Samuel
Contents
Preface to the Second Edition ix Preface to the First Edition xiii Acknowledgments xvii
1
Rethinking Banking
1
2
Why Intervene in Credit Markets?
3
Roots of Microfinance: ROSCAs and Credit Cooperatives
4
Group Lending
5
Beyond Group Lending
6
Savings and Insurance
7
Gender
8
Commercialization and Regulation
9
Measuring Impacts
10
Subsidy and Sustainability
11
Managing Microfinance
29
97 137 169
211
Notes 383 References 409 Abbreviations 439 Name Index 443 Subject Index 449
267
347
317
239
67
Preface to the Second Edition
When we started writing this book in 1998, the idea of microfinance was a