Finance

Banks and Microbanks

Banks and Microbanks
Journal of Financial Services Research (2014) 46:1–53. DOI 10.1007/s10693-013-0177-z

Robert Cull, Asli Demirgüç-Kunt, and Jonathan Morduch
09/16/2013

We combine two datasets to examine whether the presence of banks affects the profitability and outreach of microfinance institutions.We find evidence that competition matters. Greater bank penetration in the overall economy is associated with microbanks pushing toward poorer markets, as reflected in smaller average loans sizes and greater outreach to women. The evidence is particularly strong for microbanks relying on commercial-funding and using traditional bilateral lending contracts (rather than group lending methods favored by microfinance NGOs). We consider plausible alternative explanations for the correlations, including relationships that run through the nature of the regulatory environment and the structure of the banking environment, but we fail to find strong support for these alternative hypotheses.

Moroccan Migrants as Unlikely Captains of Industry: Remittances, Financial Intermediation, and La Banque Centrale Populaire

Moroccan Migrants as Unlikely Captains of Industry: Remittances, Financial Intermediation, and La Banque Centrale Populaire
In S. Eckstein, ed. Immigrant Impact in their Homelands. Durham: Duke University Press.

Iskander, N.
09/06/2013

The impact that remittances – the monies that migrants send home – have on the development on migrant-sending economies is a matter of considerable debate. This essay presents the case of Morocco and its state-controlled bank, La Banque Centrale Populaire (BCP), to argue that the major determinant of remittance impact on development is the quality and breadth of financial intermediation to which migrants have access. By providing a set of financial tools that allowed migrants to deposit, save, and invest with the institution, the BCP, since 1969, simultaneously made remittances funds available the migrants for their personal expenditures and to the Moroccan government for large-scale industrial investment. However, to create financial services for migrants with an appeal broad enough to bring significant amounts of remittance liquidity into the banking sector, BCP had to engage migrants in an open and collaborative process of product design. Ultimately, this paper argues, migrants’ involvement in the design of financial products enabled them to use the banking system to redirect remittances resources to rural and semi-rural areas most migrants were from, and to amend the industrial development priorities of the Moroccan government.

Economics, First Edition.

Economics, First Edition.
McGraw-Hill/Irwin.

Karlan, Dean and Jonathan Morduch
09/06/2013

Built from the ground up to focus on what matters to students in today’s high-tech, globalized world, Dean Karlan and Jonathan Morduch’s Economics represents a new generation of products, optimized for digital delivery and available with the best-in-class adaptive study resources in McGraw-Hill’s LearnSmart Advantage Suite. Engagement with real-world problems is built into the very fabric of the learning materials as students are encouraged to think about economics in efficient, innovative, and meaningful ways.

Drawing on the authors’ experiences as academic economists, teachers, and policy advisors, a familiar curriculum is combined with material from new research and applied areas such as finance, behavioral economics, and the political economy, to share with students how what they’re learning really matters. This modern approach is organized around learning objectives and matched with sound assessment tools aimed at enhancing students’ analytical and critical thinking competencies. Students and faculty will find content that breaks down barriers between what goes on in the classroom and what is going on in our nation and broader world.

By teaching the right questions to ask, Karlan and Morduch provide readers with a method for working through decisions they’ll face in life and ultimately show that economics is the common thread that enables us to understand, analyze, and solve problems in our local communities and around the world.

Financial Incentives and Fertility

Financial Incentives and Fertility
Review of Economics and Statistics, Volume 95 (Number 1), March 2013, pp. 1-20.

Dehejia, Rajeev and Alma Cohen.
03/01/2013

This paper investigates how fertility responds to financial incentives. We construct a large, individual-level panel data set of over 300,000 Israeli women during the period 1999–2005 with comprehensive information on their fertility histories, education, religious affiliation, ethnicity, and income. We exploit variation in Israel’s child subsidy program to identify the impact of changes in the price of a marginal child on fertility. We find a positive, statistically significant, and economically meaningful price effect on fertility. This positive effect is strongest for households in the lower range of the income distribution, weakens with income, and is present in all religious and ethnic subgroups. There is also a significant price effect on fertility among women who are close to the end of their lifetime fertility, suggesting that at least part of the effect that we estimate is due to a reduction in total fertility. Finally, we investigate how changes in household income affect fertility choices. Consistent with Becker (1960) and Becker and Tomes (1976), we find that the income effect is small in magnitude, and is negative at low income levels and positive at high income levels.

Beyond Foundation Funding: Revenue-Generating Strategies for Sustainable Social Change

Beyond Foundation Funding: Revenue-Generating Strategies for Sustainable Social Change
RCLA Report; February 2013

Jennifer Dodge, Amparo Hofmann-Pinilla, Angela Beard and Caitlin Murphy
02/05/2013

As social change organizations diversify their funding to be less reliant on foundations, they are finding creative ways to adapt traditional strategies and experiment with new ones. This report from RCLA and the Mertz Gilmore Foundation offers specific revenue-generation strategies and examples of nonprofits putting them into practice to offer immediate, actionable guidance for social change organizations, funders and technical assistance providers.

Balanced Budget Requirements and State Spending: A Long-Panel Study.

Balanced Budget Requirements and State Spending: A Long-Panel Study.
Public Budgeting & Finance 33(2): 1-18.

Smith, Daniel L. and Yilin Hou.
01/01/2013

This study tests the effects of balanced budget requirements on three measures of state expenditure using data on 48 states for the years 1950 to 2004. We find that the following rules are effective in constraining expenditures: 1) requiring that the governor submit a balanced budget; 2) placing controls on supplemental appropriations; and 3) prohibiting the carry-over of a deficit from one fiscal year or biennium into the next. The latter two rules exert larger individual effects than the first. All else equal, states can best improve their prospects of reigning in spending by instituting technical rules that govern budgetary outcomes, as opposed to political rules that dictate how the budget is assembled and approved. 

Employee Benefit Financing and Municipal Bankruptcy

Employee Benefit Financing and Municipal Bankruptcy
Journal of Government Financial Management 62(1): 12-19.

Ives, Martin and Thad Calabrese
01/01/2013

Five municipalities with populations over 100,000 have declared bankruptcy since 2008, as have some smaller ones, including Central Falls, RI, in 2011. The bankruptcies have unsettled citizens, current and retired employees, and creditors of the governments involved; further, the apparent increasing willingness of municipal officials to file for bankruptcy has raised concerns nationwide. Municipal bankruptcy is exceedingly rare. Only 650 US Bankruptcy Code Chapter 9 municipal bankruptcy cases were filed between 1937 and 2012; by contrast, 2009 alone saw more than 11,000 Chapter 11 corporate reorganization filings. The bankruptcy of Central Falls shows what can happen when systematic underfunding of employee benefit promises runs into a weak, declining economy. Central Falls is a relatively poor municipality. The consequences of bankruptcy can be severe for citizens, employees and creditors. As the current bankruptcy filings unfold in the courts, there is growing alarm among those concerned with government finances regarding the impact of bankruptcy on future borrowing costs and on the safety of employee benefit promises.

How Microfinance Really Works

How Microfinance Really Works
The Milken Institute Review

Morduch, Jonathan
01/01/2013

About half of the world’s adults lack bank accounts. Most of these “unbanked” are deemed too expensive to serve, or not worth the hassle created by banking regulations. But what may be good business from a banker’s perspective isn’t necessarily what’s best for society. The inequalities that persist in financial access reinforce broader inequalities in the distribution of income and wealth. This is the opening for microfinance and also its challenge. Microlending has been sold as a practical means to get capital into the hands of small-scale entrepreneurs who can then earn their way out of poverty. The idea appeals to our impulse to help people help themselves and to our conviction that bottom-up development depends on the embrace of the market. By eschewing governments and traditional charities, the sector promises to sidestep the bureaucracy and inertia that have hobbled other attempts to expand the opportunities of the poor.

Running on Empty: The Operating Reserves of US Nonprofit Organizations

Running on Empty: The Operating Reserves of US Nonprofit Organizations
Nonprofit Management & Leadership 23(3): 281-302.

Calabrese, Thad.
01/01/2013

Operating reserves allow nonprofit organizations to smooth out imbalances between revenues and expenses, helping to maintain program output in the presence of fiscal shocks. We know surprisingly little about why nonprofits might save operating reserves and what factors explain variation between organizations' savings behavior. Findings suggest that operating reserves are reduced in the presence of concentrated public funds, access to debt, fixed assets, and endowment. However, size is not an important predictor, indicating that the lack of reserves is not limited to small nonprofit organizations but is instead a sectorwide issue. Significant numbers of nonprofits maintain no operating reserves at all. One potential explanation is that organizations discount the benefits of reserves because they are evaluated on spending, focusing instead on the “benefits of costs.” This preference for spending over reserving may also help explain the general lack of liquidity in the sector beyond operating reserves alone.

Debt, Donors, and the Decision to Give

Debt, Donors, and the Decision to Give
Journal of Public Budgeting, Accounting, and Financial Management, volume 24, no. 2: 221-254

Calabrese, Thad, Grizzle, C.
06/01/2012

There has been a significant amount of work done on the private funding of nonprofits. Yet, despite the enormous size of the nonprofit sector as a whole, the importance of private donations to the sector, and the significance of the sector to public finances, there has been very little empirical research done on the capital structure of nonprofit organizations, and none has examined the potential effects of borrowing on individual contributions. Debt might affect donations because programmatic expansion might “crowd-in” additional donors, the use of debt might “crowd-out” current donors since expansion is undertaken at the behest of the organization (and not due to donor demand for increased output), donors might have a preference for funding current output rather than past output, or because of concerns that the nonprofit will be unable to maintain future programmatic output. These potential effects of debt on giving by individuals have not been the focus of research to date. The primary data for this paper come from the “The National Center on Charitable Statistics (NCCS)-GuideStar National Nonprofit Research Database” that covers fiscal years 1998 through 2003. The digitized data cover all public charities required to file the Form 990. The final sample contains 460,577 observations for 105,273 nonprofit entities. The results for the full sample support a “crowding-out” effect. The analysis is repeated on a subsample of nonprofits more dependent upon donations, following Tinkelman and Mankaney (2007). The restricted sample contains 121,507 observations for 36,595 nonprofit organizations. The results for the subsample are more ambiguous: secured debt has little or no effect, while unsecured debt has a positive effect. The empirical analysis is then expanded to test whether nonprofits with higher than average debt levels have different results than nonprofits with below average debt levels. The results suggest that donors do remove future donations when a nonprofit is more highly leveraged compared to similar organizations.
Nonprofits may fear that the use of debt signals mismanagement or bad governance, worrying that donors will punish the organization by removing future donations. The results presented here suggest a more complicated relationship between nonprofit leverage and donations from individuals than this simple calculus. On the one hand, increases in secured debt ratios (from mortgages and bonds) seems to reduce future contributions, possibly because donors are wary of government or lender intervention in the nonprofit’s management, or possibly because of the lack of flexibility inherent in repaying such rigid debt. On the other hand, unsecured debt, while more expensive, seems to crowd-in donations, even at increasingly higher levels when compared to similar organizations. There are at least two important conclusions from this analysis. First, during times of fiscal stress, nonprofits are often tempted to use restricted funds in ways inconsistent with donor intent simply to ensure organizational survival. Rather than violate the trust of certain donors, the results here suggest that nonprofits would be better off utilizing unsecured (possibly short-term) borrowing to smooth out cash flow needs. This option, however, assumes that nonprofits have access to some type of borrowing which is not true for many organizations. A second conclusion one might draw, therefore, is that policy considerations should be made to expand access to debt for nonprofits. The results here suggest that certain types of unsecured debt might in fact draw in additional resources, allowing nonprofits to leverage these borrowings for additional resources. By encouraging this type of policy option, nonprofits would not only gain access to increased revenue sources, but might be able to maintain programmatic output during times of fiscal stress.

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