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Despite their potential importance and ease of modification, impacts of monitoring and loan recovery arrangements on micro-credit groups' repayment performance have rarely been studied. Data on 3,350 expired group loans in 300 Indian villages highlight that regular monitoring and audits, high repayment frequency, consumption smoothing support through rice credit, and having group savings deposited with the lender all significantly increase repayment rates. Estimated magnitudes of their effects vastly exceed those of members' socio-economic characteristics. Significantly lower repayment on loans originating in externally provided grant resources suggests that stringent monitoring will be essential for these to have a sustainable impact.

Bankruptcy and Resolution of Financial Distress --- Commercial banks --- Consumption smoothing --- Credit groups --- Debt Markets --- Deposit --- Finance and Financial Sector Development --- Group loans --- Group savings --- Insurance --- International bank --- Lender --- Loan --- Loan recovery --- Micro-credit --- Micro-finance --- Microcredit --- Moral hazard --- Poor borrowers --- Repayment --- Repayment performance --- Repayment rates --- Trust fund

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Regulation allows microfinance institutions to evolve more fully into banks, particularly for institutions aiming to take deposits. But there are potential trade-offs. Complying with regulation and supervision can be costly. The authors examine the implications for the institutions' profitability and their outreach to small-scale borrowers and women. The tests draw on a new database that combines high-quality financial data on 245 of the world's largest microfinance institutions with newly-constructed data on their prudential supervision. Ordinary least squares regressions show that supervision is negatively associated with profitability. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, the analysis finds that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability. The pattern is consistent with the notion that profit-oriented microfinance institutions absorb the cost of supervision by curtailing outreach to market segments that tend to be more costly per dollar lent. By contrast, microfinance institutions that rely on non-commercial sources of funding (for example, donations), and thus are less profit-oriented, do not adjust loan sizes or lend less to women when supervised, but their profitability is significantly reduced.

Access to Finance --- Banks --- Banks and Banking Reform --- Debt Markets --- Depositors --- Deposits --- Economies of scale --- Finance and Financial Sector Development --- Financial institutions --- Financial services --- Financial system --- International bank --- Loan --- Loan sizes --- MFI --- MFIS --- Microfinance --- Microfinance institution --- Microfinance institutions --- Outreach --- Profitability --- Repayment --- Repayment rates --- Start-up

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Abstract: This paper evaluates the impact of the Thailand Village and Urban Revolving Fund on household expenditure, income, and assets. The revolving fund was launched in 2001 when the Government of Thailand promised to provide a million baht (about USD 22,500) to every village and urban community in Thailand as working capital for locally-run rotating credit associations. The money - about USD 2 billion in total - was quickly disbursed to locally-run committees in almost all of Thailand's 74,000 villages and more than 4,500 urban (including military) communities. By May 2005, the committees had lent a total of about USD 8 billion, with an average loan of USD 466. Using data from the Thailand Socioeconomic Surveys of 2002 and 2004, each of which surveys almost 35,000 households, the authors find that the borrowers were disproportionately poor and agricultural. A propensity score matching model finds that Fund borrowing in 2004 was associated with, on average, 1.9 percent more income, 3.3 percent more expenditure, and about 5 percent more ownership of durable goods. These results are broadly consistent with the results from instrumental variables models (where the identifying instrument was the inverse of village size), which however show a smaller (marginal) effect. Households that borrowed both from the revolving fund and from the Bank of Agriculture and Agricultural Cooperatives gained substantially more in terms of higher income than those who borrowed from either one or the other or from neither.

Agricultural cooperatives --- Bankruptcy and Resolution of Financial Distress --- Banks and Banking Reform --- Communities & Human Settlements --- Credit associations --- Debt Markets --- Durable --- Durable goods --- Economic Theory and Research --- Emerging Markets --- Exchange rate --- Expenditure --- Finance and Financial Sector Development --- Financial institutions --- Household incomes --- Housing and Human Habitats --- Instrument --- Interest rates --- International bank --- Investment and Investment Climate --- Labor Policies --- Loan --- Loan amounts --- Macroeconomics and Economic Growth --- Microcredit --- Microfinance --- Poverty Monitoring and Analysis --- Poverty Reduction --- Private Sector Development --- Repayment --- Repayment of principal --- Revolving fund --- Rotating credit --- Rural Development --- Rural Poverty Reduction --- Social Protections and Labor --- Working capital

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Using two new datasets, the authors examine whether the presence of banks affects the profitability and outreach of microfinance institutions. They 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 the group lending methods favored by microfinance nongovernmental organizations). The analysis considers 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 it fails to find strong support for these alternative hypotheses.

Access to Finance --- Bank branch --- Banking system --- Banks --- Banks and Banking Reform --- Collateral --- Commercial banks --- Debt Markets --- Deposit --- Economic Theory and Research --- Finance and Financial Sector Development --- Financial Access --- Financial depth --- Financial institutions --- Financial services --- Group lending --- International Bank --- Loan --- Loan sizes --- Low-income borrowers --- Microfinance --- Microfinance institutions --- Outreach --- Profitability --- Repayment