Comments on: Mongolian microfinance: Some first insights from a randomised field experiment

By: Lucy Granville Web Editor

Lucy Granville Web Editor — Wed, 02 Nov 2011 15:02:55 +0000

Dear Noémie,
Many thanks for the interest in our study. We have now finalised the working paper and it should appear on-line by end November. In the end we decided to collect additional data on loan repayments from XacBank and this has taken us a while. Incidentally, I just returned from Mongolia last week where I held some structured interviews with a number of the borrowers in both the individual and the group lending villages. One of the most interesting things to hear was that a number of group borrowers liked that they had to save upfront (the group had to save 20% of the future loan amount and put that down as collateral). One woman even told me that because of that experience she opened a savings account for the first time in her live. So, this anecdotal evidence seems to confirm some recent findings that show that microborrowers may actually just be looking for a structured and safe way to save. As for the move from micro to SME: you are spot on. After the financial crisis in 2008 and the harsh winter, a number of MFIs decided to focus less on rural microlending and more on (urban) SME lending. This development is exacerbated by the current resource boom in Mongolia, which will (hopefully) help to create more business activity across the board. I agree with you, however, that we may see a further widening of income gaps in the years to come, the extent of which will largely depend on two things. First, to what extent will the government be able to prevent “Dutch Disease” by managing its natural resources well. In an ideal world, the boom would be an opportunity for Mongolian medium-sized firms to profit from the increased activity in the mining sector, e.g. by starting to supply such companies. This would allow for a broader section of the Mongolian population to participate in the process of accelarated economic growth. The experience of other resource-rich countries shows, however, that this may be very difficult to achieve and that the “missing middle” – the absence of medium-sized enterprises in developing countries – may actually become more pronounced. Second, the Mongolian government plans to share a part of its resource-related income directly with the population through cash transfers. It will be interesting to see how they will do this exactly and what the impact will be on poverty alleviation. Again, in an ideal world such (conditional or unconditional) cash transfers could help people to improve their living standards, both in the short run and, if they can meaningfully invest some of the money in (human or physical) capital accumulation, also in the long run. The risk is, of course, that transfers may only alleviate poverty in a very shallow way, without leading to more long-term and more transformational impacts.
With best wishes,
Ralph

By: Noemie

Noemie — Thu, 18 Aug 2011 08:38:19 +0000

Dear Ralph,

Your research project looks very interesting and promising! I am looking forward to see the publication…

Furthermore, I was also wondering whether you got any sense of increasing over-indebtedness or saturation of the microfinance market during your research on the field. Many practicionners have highlighted the high penetration rate and saturation of the microfinance market in Mongolia and some banks have been slowly moving from micro lending to SME lending… At the same time I read that poverty remains widespread as the income gap widens. There could be thus increasing need for MF services adapted to the lower end of the market, especially in UB following recent migration in ger areas, no?… I was wondering if you could share your experience and perceived risks of the situation.

Many thanks for sharing your experience,

Warm regards,

Noémie

By: Ralph De Haas

Ralph De Haas — Tue, 04 Jan 2011 09:58:28 +0000

Hi Steve,
Thanks for your message. The report has been delayed because we we wanted to collect additional data on borrowers’ repayment behaviour. These are not the “main” (baseline and follow-up) survey data we collected ourselves, but additional information we get out of XacBank’s MIS. Since XacBank changed IT systems halfway through the experiment, this has proven more difficult than originally anticipated. The analysis of the main data has been finalised however, and we are currently writing up the paper. As soon as it is published as an EBRD working paper, I will post a blog here. Btw, we do indeed find some differentiated impacts along the lines you describe. In particular, we find that any positive impact of access to microcredit on enterprise creation and consumption was driven by the less-educated women in our treatment areas.
Best regards
Ralph

By: Steve Attree

Steve Attree — Tue, 28 Dec 2010 23:27:36 +0000

Hi Ralph,

It looks a very interesting project and I wondered what the reasons were for the delay in publication and whether you have an expected publication date? Also, one point I am interested in is whether you will you be able to differentiate the benefits of microfinance between relatively better off and worse off recepients and also younger and older members of the sample group?

Many thanks for your help

Steve

By: researcher

researcher — Thu, 09 Sep 2010 04:36:01 +0000

Since June has passed by, I am hoping the report will be soon made public. We are researching into Mongolia case to identify if this micro finance development project which was supported and funded by UNDP,USAID and four other NGOs, has really delivered the benefits to the rural poor since gong private in 2002. As we know financial market liberalization often discourage microfinance pvt companies to engage with the poorest, specially when the rural areas are sparely populated, as is the case in Mongolia. So, if an example is taken Xac bank,has it brought transformational change to poverty reduction?

By: Ireedui

Ireedui — Sun, 28 Mar 2010 14:41:47 +0000

Hi, Ralph.

Nice to hear that you are doing this research, because I’ve been always wondering whether this micro-loans really help them or kill them. Look forward to seeing the final result.

By: Ralph de Haas

Ralph de Haas — Fri, 12 Mar 2010 09:55:25 +0000

Thanks for your comment. In this experiment we do not explicitly take displacement effects into account; we measure the impact on the borrower level. This contrasts with some other microfinance studies, such as a recent one in India, where the impact is measured through interviewing a random sample of people (i.e. both borrowers and non-borrowers) in each treatment and control village.

We chose to focus on interviewing the borrowers only because at the onset of the experiment almost all women in each village were allowed to sign up to the project. So, in treatment villages all women who were interested in a loan were able to apply and get a loan (provided they passed the lending criteria of XacBank). This reduces the chance of negative within-village spillovers from women with access to finance to women without access to finance, to the extent that the women who did not sign up were not in dire need of borrowing and did not face “unfair competition” from women who suddenly did get access to the experimental loans.

We plan to model actual loan take-up more carefully in order to understand which people did and did not take out loans when they were offered. Finally, negative spill-overs from female businesses to male business are also unlikely as most men engage in herder activities only. I hope this at least partially answers your question.

By: Milford Bateman

Milford Bateman — Thu, 04 Mar 2010 15:01:27 +0000

Hi,

Could you provide me with details of how you intend to control for displacement effects in your study? Studies of similar MF programs in other countries, including the UK in the 1980s, show that new jobs/incomes in client microenterprises are very often totally offset by counterpart losses in local non-client microenterprises displaced. This is especially the case because we are talking here about very simple non-tradeable goods and services. Our research in Colombia (Medellin) showed us that displacement effects were very high – most simple microenterprises find their competition exists in the same street or same neighbourhood, so displacement effects were very high, ultimately rendering microfinance-induced new entry and expansion activity a problem for the poor. Another crucial displacement impact is the declining incomes of non-cients as more (unnecessary) competition arrives taking business and turnover away, thus lowering their margins. How is this factored into your model as to whether or not microfinance benefits the community overall (and not just clients)?

Many thanks

Milford

By: Kerry Brennan

Kerry Brennan — Mon, 01 Mar 2010 21:36:13 +0000

It is great to see more rigorous work adding to the body of knowledge on the impact of access to finance. I look forward to reading the full results of the evaluation in June. Researchers at Innovations for Poverty Action are undertaking similar studies on the impact of microfinance in Morocco, Mexico, and the Philippines. It will certainly be interesting to see how the results compare...

By: Ralph De Haas, Senior Economist

Ralph De Haas, Senior Economist — Thu, 25 Feb 2010 17:51:03 +0000

Hi Fabio,
Thanks for your comment. I agree with you that expectations about microfinance may gradually have become somewhat overblown. Some of the recent studies that I linked to in the blog indicate that microfinance – at least in some countries – may not have lived up to all the expectations about its positive impact on the poor (investments in profitable small businesses, consumption smoothing, better health and education, empowerment of women, etc.). But they also show that some basic results can be attributed to microfinance: the creation of new businesses and/or improving the effiency of existing ones and/or a better ability to manage income shocks and/or increases in durable or nondurable consumption. These are all positive results. So, while microfinance may not be a panacea that will ‘cure’ all aspects of poverty at once, it may alleviate some important problems in the lives of poor people (and may even lift some of them out of poverty alltogether). We hope that we can soon say more about how the results of our impact assessment in Mongolia (and a similar one in Bosnia) compare to these findings. However, your point on increasing non-performing microloans in some countries is well taken. While I still think the concept of microfinance is useful, there have been instances (think of certain parts of India and Bosnia) where in recent years too much microfinance may have been pushed into the market (but the same holds for mortgages and other forms of bank lending in large parts of the developed world…). It wil be interesting to see to what extent we can trace that back in our data: both Bosnia and Mongolia were hit by the crisis in the period between our baseline and follow-up survey. We should thus be able to see whether treatment and control groups differed in their ability to deal with this economic shock. As I said in the blog, stay tuned