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Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor, and enforce each other's loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender's overall profitability and the poor's access to financial markets. The authors worked with a bank in the Philippines to conduct a field experiment to examine these issues. They randomly assigned half of the 169 pre-existing group liability 'centers' of approximately twenty women to individual-liability centers (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in center size by attracting new clients.

Bank Policy --- Conversion --- Debt Markets --- Exchange --- Finance and Financial Sector Development --- Financial Literacy --- Financial Markets --- Good --- Group Lending --- Joint Liability --- Lender --- Liability --- Loans --- Micro-Enterprises --- Microcred Microfinance --- Poverty --- Repayment --- Repayment Rate --- Repayment Rates --- Social Capital --- Transaction --- Transaction Costs

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The household enterprise sector has a significant role in the Tanzanian economy. It employs a larger share of the urban labor force than wage employment, and is increasingly seen as an alternative to agriculture as a source of additional income for rural and urban households. The sector is uniquely placed within the informal sector, where it represents both conditions of informal employment and informal enterprise. This paper presents a case study on Tanzania using a mixed approach by combining both quantitative and qualitative analysis to examine the important role of household enterprises in the labor force of Tanzania, and to identify key factors that influence their productivity. Household enterprise owners are similar to typical labor force participants although primary education appears to be the minimum qualification for household enterprise operators to be successful. Access to location matters - good, secure location in a marketplace or industrial cluster raises earnings-and access to transport and electricity is found to have a significant effect on earnings as well. In large urban areas, the biggest constraint faced by household enterprises is the lack of access to secure workspace to run the small business. Although lack of credit is a problem across all enterprises in Tanzania, household enterprises are more vulnerable because they are largely left out of the financial sector either as savers or borrowers. Although HEs are part of the livelihood strategies of over half of households in Tanzania, they are ignored in the current development policy frameworks, which emphasize formalization, not productivity. Tanzania has a large number of programs and projects for informal enterprises, but there is no set of policies and program interventions targeted at the household enterprise sector. This gap exacerbates the vulnerability of household enterprises, and reduces their productivity.

Access to Finance --- Banks & Banking Reform --- Debt Markets --- Employment --- Female employment --- Household enterprises --- Informal economy --- Job creation --- Labor Markets --- Macroeconomics and Economic Growth --- Micro enterprises --- Population Policies --- Poverty Reduction --- Poverty reduction --- Returns to education and training --- Self-employment --- Youth --- Tanzania

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Small-scale entrepreneurs are ubiquitous in emerging market economies, yet very few graduate to become larger businesses. This paper asks whether such entrepreneurs aspire to grow and, if so, on which dimensions of the business? What factors influence these aspirations, how realistic are they, and do entrepreneurs dynamically update them based on realized outcomes? A unique panel data set of small-scale retailers in Indonesia is used to show that the average business has strong short- and long-term aspirations for growth in shop size, number of employees, number of customers, and sales. Yet, more than 50 percent of the businesses report no aspirations for growth in the next 12 months, and 16 percent fail to imagine an ideal business over the long term. Entrepreneurs with low profits, business skills, and agency beliefs, as well as those who are older, female, and less educated have significantly lower aspirations. Analysis from a year later shows that most entrepreneurs fail to set realistic aspirations at baseline, but significantly adjust their aspirations to realistic levels with realized outcomes. The analysis also shows that baseline aspirations are a strong predictor of measures of business expansion and innovation, as well as performance outcomes a year later.

Adaptive Learning --- Aspirations --- Education --- Educational Sciences --- Firm Performance --- Gender --- Gender & Development --- Inequality --- Innovation --- Law and Development --- Marketing --- Micro-Enterprises --- Poverty Reduction --- Private Sector Development --- Private Sector Development Law --- Private Sector Economics --- Small Business Growth

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Using survey data from 86,000 enterprises in 104 countries, including 17,000 enterprises in 31 Sub-Saharan African countries, this paper finds that average enterprise-level employment growth rates are remarkably similar across regions. This is true despite significant differences in the quality of the investment climate in which these enterprises operate. Objective measures of investment climate conditions (including the number of outages, the share of firms with bank loans, and others) indicate that conditions are most challenging within Sub-Saharan Africa, as well as for smaller enterprises. However, enterprises' employment in Sub-Saharan Africa is less sensitive to changes in access to infrastructure and finance relative to other low-income regions. This can be understood by looking at non-linear effects by firm size - and the finding that these size effects are particularly strong within Sub-Saharan Africa. Although unreliable infrastructure services and inadequate access to finance generally hamper growth, in Sub-Saharan Africa they are actually associated with higher employment growth rates among micro enterprises. Although employment growth is good news in Sub-Saharan Africa, that much of the expanded employment is in small, labor-intensive, less productive enterprises raises longer-run concerns about the efficiency of the allocation of resources and aggregate productivity growth in the region.

Access to Finance --- Access to finance --- Access to formal finance --- Access to services --- Bank loans --- Banks & Banking Reform --- Bribes --- Corruption --- Economies of scale --- Employment growth --- Entrepreneurs --- Exclusion --- External financing --- Finance and Financial Sector Development --- Greater access --- International bank --- Investment and Investment Climate --- Labor markets --- Labor Policies --- Lack of access --- Macroeconomics and Economic Growth --- Micro enterprises --- Micro-enterprises --- Microfinance --- Property rights --- Red tape --- Small enterprises --- Social Protections and Labor

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Credit risk remains one of the major risks faced by most financial and credit institutions. It is deeply connected to the real economy due to the systemic nature of some banks, but also because well-managed lending facilities are key for wealth creation and technological innovation. This book is a collection of innovative papers in the field of credit risk management. Besides the probability of default (PD), the major driver of credit risk is the loss given default (LGD). In spite of its central importance, LGD modeling remains largely unexplored in the academic literature. This book proposes three contributions in the field. Ye & Bellotti exploit a large private dataset featuring non-performing loans to design a beta mixture model. Their model can be used to improve recovery rate forecasts and, therefore, to enhance capital requirement mechanisms. François uses instead the price of defaultable instruments to infer the determinants of market-implied recovery rates and finds that macroeconomic and long-term issuer specific factors are the main determinants of market-implied LGDs. Cheng & Cirillo address the problem of modeling the dependency between PD and LGD using an original, urn-based statistical model. Fadina & Schmidt propose an improvement of intensity-based default models by accounting for ambiguity around both the intensity process and the recovery rate. Another topic deserving more attention is trade credit, which consists of the supplier providing credit facilities to his customers. Whereas this is likely to stimulate exchanges in general, it also magnifies credit risk. This is a difficult problem that remains largely unexplored. Kanapickiene & Spicas propose a simple but yet practical model to assess trade credit risk associated with SMEs and microenterprises operating in Lithuania. Another topical area in credit risk is counterparty risk and all other adjustments (such as liquidity and capital adjustments), known as XVA. Chataignier & Crépey propose a genetic algorithm to compress CVA and to obtain affordable incremental figures. Anagnostou & Kandhai introduce a hidden Markov model to simulate exchange rate scenarios for counterparty risk. Eventually, Boursicot et al. analyzes CoCo bonds, and find that they reduce the total cost of debt, which is positive for shareholders. In a nutshell, all the featured papers contribute to shedding light on various aspects of credit risk management that have, so far, largely remained unexplored.

Coins, banknotes, medals, seals (numismatics) --- recovery rates --- beta regression --- credit risk --- contingent convertible debt --- financial modelling --- risk management --- financial crisis --- recovery rate --- loss given default --- model ambiguity --- default time --- no-arbitrage --- reduced-form HJM models --- recovery process --- Counterparty Credit Risk --- Hidden Markov Model --- Risk Factor Evolution --- Backtesting --- FX rate --- Geometric Brownian Motion --- trade credit --- small and micro-enterprises --- financial non-financial variables --- risk assessment --- logistic regression --- probability of default --- wrong-way risk --- dependence --- urn model --- counterparty risk --- credit valuation adjustment (CVA) --- XVA (X-valuation adjustments) compression --- genetic algorithm --- n/a