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ANNO 2009

ASSET BUILDING AND POVERTY REDUCTION IN GHANA: THE CASE OF MICROFINANCE  ASSET BUILDING AND POVERTY REDUCTION IN GHANA: THE CASE OF MICROFINANCE

Joseph Adjei, Thankom Arun and Farhad Hossain    

This paper examines the extent to which microfinance has contributed to poverty reduction in Ghana by supporting their clients with both financial and non-financial services to build up their asset base. The study found that participation in the programme has enabled established clients to own savings deposits and subscribe to a client welfare scheme to pay off debts in times of illness or death. They were also found to be in a better position to contribute towards the education of their children, payment of health care for members of their households and the purchase of household durables. The study further noted that clients who remained in microfinance programmes for long periods of time suffered from diminishing marginal returns. There should be some form of up-scaling to accommodate these clients or they should be able to join other financial service providers in the formal sector in order to benefit fully from a participation in microfinance programmes.

 

Keywords: microfinance, asset building, poverty reduction, financial sustainability, Sub-Saharan Africa, Ghana


CAPITAL MARKET DEVELOPMENT AND INVESTMENT EFFICIENCY IN NIGERIA  CAPITAL MARKET DEVELOPMENT AND INVESTMENT EFFICIENCY IN NIGERIA

OLATUNDUN ADELEGAN    
This paper examines whether financial integration and capital market development has improved the efficiency with which investment funds are allocated to competing uses. The question is addressed using annual firm level data for manufacturing firms in Nigewria for 856 firm year. The study used an event study methodology to measure whether, and to what extent, investment funds are being allocated to firms with higher marginal return to capital around the period of financial integration. It also access whether the investment-Financial integration relationship depends on economic, financial and political factors. The result shows that investment was slowed down in high net worth growing firms and ramped up in the low net worth declining firms in the pre and post financial integration periods in Nigeria. However, the effect is more pronounced in the post financial integration period. This is a possible reason for slow growth in Nigeria. The elasticity estimates of firm investments to Tobin’s Q and Sales relative to capital are positive for all years except for 1988 and 1991, which are periods of financial repression in Nigeria.The elasticities are generally small. The correlation coefficients between investment elasticities from Tobin’s Q and Sales to capital ratio with capital market capitalisation are positive. This study finds that the mechanism by which the financial market improves investment efficiency in Nigeria is through the capital market. This provides evidence that stock market prices in Nigeria are not economic sideshows, but they are actually useful guides to investment.

CREDIT CONCENTRATION OF BRAZILIAN RURAL ACTIVITIES FROM 2000 TO 2007  CREDIT CONCENTRATION OF BRAZILIAN RURAL ACTIVITIES FROM 2000 TO 2007

Humberto Francisco Silva Spolador and Roberto Arruda de Souza Lima    

This paper aims to analyze the degree of concentration of loans allocated to agricultural and livestock activities in Brazil for the period 2000-2007 and to assess the distribution pattern of credit among the states, analyzing the extent to which the volume of distributed credit is proportional to the states share of production and harvest areas, regarding agriculture, and the participation of each state in the total Brazilian livestock. The results suggest that rural credit still remains concentrated in states of the Southern and Southeastern regions, although there has been a credit decentralization during the current decade in favor of agricultural frontier in parts of Central and North regions of Brazil.


JEL classification: E51, G21, L11
Keywords: rural credit, concentration, distribution, Theil index.




EASING POVERTY THROUGH THRIFT  EASING POVERTY THROUGH THRIFT

DALE W ADAMS    
In times past thrift was encouraged while debt was condemned. But more recently the notion of debt has replaced thrift as the way to ease poverty. A few recent examples demonstrate that poor people can and will save if given proper opportunities and incentives. Compared to a euro borrowed, a saved euro is more useful because it is cheaper and less risky. The benefits of savings/deposits for individuals, financial intermediaries, and the economy in general are summarized in the article. The author concludes that poor people would be better served if more emphasis was placed on deposits and less emphasis given to credit.

FINANCE-GROWTH NEXUS AND INFLATION DYNAMICS IN KENYA: AN EMPIRICAL INVESTIGATION  FINANCE-GROWTH NEXUS AND INFLATION DYNAMICS IN KENYA: AN EMPIRICAL INVESTIGATION

NICHOLAS M. ODHIAMBO    
This study takes a fresh look at the direction of causality between financial development and economic growth in Kenya by examining the impact of inflation on the finance-growth nexus. The empirical results reveal that economic growth Granger-causes financial development in Kenya irrespective of whether the causality is estimated in a bivariate framework or in a trivariate setting. The study, therefore, concludes that the financial sector development in Kenya is largely dependent on the demand for, rather than the supply of, financial services. Other results show that economic growth Granger-causes inflation while inflation Granger-causes financial development in Kenya. The results apply irrespective of whether the causality is estimated in the short run or in the long run.

FINANCIAL EXCLUSION: WHAT DRIVES SUPPLY AND DEMAND FOR BASIC FINANCIAL SERVICES IN GHANA?  FINANCIAL EXCLUSION: WHAT DRIVES SUPPLY AND DEMAND FOR BASIC FINANCIAL SERVICES IN GHANA?

Eric Osei-Assibey    

The majority of people in Sub-Saharan Africa does not have a basic bank account and are financially excluded from mainstream financial services. This paper examines factors that drive geographic exclusion of banking services to rural communities and households’ demand for a basic bank account in Ghana. Using rural community based and household survey datasets, the study finds that banks’ decisions to place a branch in a community are positively influenced by elements as the market size, the level of infrastructure such as energy and communication facilities in the area, market activeness but are negatively influenced by the general level of insecurity associated, for example, with crime, conflict, natural disasters. Conversely, households’ demand for a bank account appears to be strongly driven by both market and non-market factors such as price, illiteracy, ethno-religion, dependency ratio, employment and wealth status as well as proximity to a bank.


JEL classification: D14, D91, G21, C35
Keywords: Financial Exclusion, Banks’ Location Decision, Bank Deposit Account, Ghana/Sub-Saharan Africa



FINANCIAL MARKETS: THE RECENT EXPERIENCE OF A DEVELOPING ECONOMY  FINANCIAL MARKETS: THE RECENT EXPERIENCE OF A DEVELOPING ECONOMY

MUSTAFA HASSAN MOHAMMAD ADAM    
The financial sector plays a crucial role in economic growth; it allows an efficient transfer of resources from those who save to those who invest. This sector comprises financial institutions, markets and instruments. This study highlights the fact that change has always been the hallmark of financial markets and the regulatory board of the Sudanese financial market. The Sudanese capital market, although an infant, could follow the route of other well-established capital markets of developing countries, keeping in view the so called globalisation, privatisation and liberalisation phenomena of the Sudanese corporate sector and securities market. There is a need for a more responsive and effective regulator to guide primary as well as secondary securities markets. This paper seeks to extend the literature by exploring the issue related to a small emerging capital market; the paper examines the current practices of Khartoum Stock Exchange (KSE) in trading of shares and evaluates the efficiency of the capital market in Sudan, as this area is still virgin in the Sudanese context, since financial markets are not generally the object of such scrutiny.

FINANCILA LIBERALIZATION AND FINANCIAL DEVELOPMENT IN IRAQ  FINANCILA LIBERALIZATION AND FINANCIAL DEVELOPMENT IN IRAQ

Amar Hamad Khalaf and Athawale Sanhita    

This paper examines the impact of financial repression policies from 1970 to 2002, and the results of the financial liberalization polices between the years 2003-2007 on the financial development of Iraq. By using the Autoregressive Distributed Lag (ARDL) model, the paper argues that neither the financial repression policies nor the financial liberalization polices promoted the financial development of Iraq. This fact suggests that Iraq’s policy-makers have to launch multi-pronged measures, such as promoting private sector enterprises, reducing informal activities in the economy, stabilizing macroeconomic variables (reduction of fiscal deficit and inflation rate), and, most importantly, restore political and social security, in order to ensure the economic prosperity of the country.


FOREIGN BANKS IN SOUTH-EAST ASIAN EMERGING COUNTRIES: WHAT ABOUT LOCAL CLAIMS?  FOREIGN BANKS IN SOUTH-EAST ASIAN EMERGING COUNTRIES: WHAT ABOUT LOCAL CLAIMS?

Delphine Lahet    

The aim of the article is to clarify the role of foreign banks in some Asian emerging countries and to estimate the consequences on economic and financial development. As a measure, we use local claims, and loans activities, of foreign banks’ subsidiaries and branches on the host emerging countries, since 1994. First, we are interested in the foreign banks’ strategies (local or cross-border activities) and in the major creditors that are, on the recent period, US and UK banks. Then, we highlight that foreign banks, in stress period, develop the local activities of their subsidiaries, particularly in local currency, that are benefic for the local banking market. When local claims are important, foreign claims are less volatile, so economic development is improving, and local banking system is more efficient, particularly in Malaysia. The results are quite the same as in the literature on Latin American and Eastern European emerging countries. Nevertheless, the 2007-08 crisis, that affects roughly foreign banks, may weaken subsidiaries and destabilize the local banking system, so the economic development of emerging countries.


GENDER CHARACTERISTICS OF THE DETERMINANTS OF ACCESS TO FORMAL CREDIT IN RURAL ZANZIBAR  GENDER CHARACTERISTICS OF THE DETERMINANTS OF ACCESS TO FORMAL CREDIT IN RURAL ZANZIBAR

KHALID S. MOHAMED and ANDREW E. TEMU    
Despite the ongoing financial reforms undertaken in many developing countries, the majority of smallholder farmers still report limited access to formal credit. It is often argued that women are particularly more credit constrained than men. Various studies conducted in many developing countries suggest that access to credit is influenced by both institutional factors as well as by household socio-economic characteristics. However, most of these studies have generalized the effect without the concern of gender.
This study was therefore conducted in order to determine the gender characteristics of the determinants of rural households’ access to credit in the formal credit markets. The specific research question addressed is whether factors that influence rural household access to credit differ by gender or not. In conducting this study, both primary and secondary data were collected. The data collection took place between May and June, 2006, covering the five districts of Unguja and Pemba islands. In total, 750 households were surveyed.
The analysis of the data collected was done using SPSS 17.0 computer software. Both descriptive and econometric statistics were analyzed and discussed. The econometric analysis was meant to determine the gender characteristics of the determinants of credit-constrained households, focusing on the formal credit market by using a Probit model with Heckman procedures. The results of the Probit model show that male and female heads being credit constrained are influenced by different set of factors. For male heads, the degree of market integration as well as the wealth and risk-bearing indicators (value of productive assets owned and household income level) are significant indicators in determining whether a household is credit constrained. For female heads, only the household income level was found to be a significant factor for a household being credit constrained.
The results from the second equation (Heckman Procedure) further suggest that human capital (education) and wealth and risk-bearing factors (keeping financial records, value of productive assets owned, household income level) are significant factors in determining the intensity of use of formal credit among male heads. On the other hand, the value of productive assets owned and the leadership status are factors that significantly influence the intensity of using formal credit among female heads. Generally, these findings suggest the need to develop gender-specific interventions to enhance access to credit in the formal credit markets.

INSURANCE SOLVENCY SUPERVISION, EUROPEAN REGULATION AND TAKAFUL PRODUCTS  INSURANCE SOLVENCY SUPERVISION, EUROPEAN REGULATION AND TAKAFUL PRODUCTS

Alberto Dreassi    

This paper investigates the application of global solvency supervisory principles and the European Solvency II regulatory framework to Takaful schemes, given their growth potential in both Western and Islamic countries.

Due to their particular nature, concerns have been raised as to the suitability of international standards for sound and proper supervision.

On the one hand, growing numbers of potential customers are already present in many Western countries, but only in a few of these countries are these products available, and even then in limited numbers, due at least in part to regulatory and supervisory constraints. In many emerging countries, on the other hand, these schemes represent a significant portion of insurance business, despite low levels of insurance penetration and a limited diffusion of specific regulation and supervision, driving attention to risks for customers arising from extreme events.

This contribution focuses on major supervisory complexities surrounding the introduction of Takaful in European countries, with regard to the forthcoming Solvency II framework.

Its three-pillared approach encompasses financial, governance and risk management requirements, as well as transparency and enhanced disclosure: in all these areas, several issues arise when considering Takaful schemes (e.g. size of market risks, definition of eligible capital, potential conflicts of interest, segregation of funds and accountability). Some concerns are shared by mutual and cooperative insurers, whereas others are more specific: the application of the proportionality principle is still under development, and its reconciliation might prove a difficult task.

The objective of this study is to highlight these main areas of concern, with particular regard to the issues of solvency and prudential supervision: this might be useful to emerging economies and their improving solvency regulation as well, should risk-based supervision be increasingly adopted as a world-wide standard.


LA GESTION DES RISQUES OPÉRATIONNELS DANS LES INSTITUTIONS DE MICROFINANCE  LA GESTION DES RISQUES OPÉRATIONNELS DANS LES INSTITUTIONS DE MICROFINANCE

HUBERT TCHAKOUTE TCHUIGOUA et ERIC LAMARQUE    

Dans les institutions de microfinance, qui contribuent indéniablement à la financiarisation des populations exclues du secteur bancaire, la problématique de la gestion des risques opérationnels reste très peu explorée. A partir de ce constat, cette recherche se donne pour objectif d’identifier les pratiques de gestion des risques opérationnels dans les institutions de microfinance selon une approche exploratoire. L’étude de trois cas d’institutions de microfinance a permis de mettre en évidence deux principales conclusions: le dispositif de gestion des risques opérationnels est organisé autour de la régulation des comportements. De plus, les différences observées dans les pratiques de gestion des risques opérationnels sont attribuables au degré d’intégration des IMF à travers les réseaux.


Mots clés: Risques opérationnels, déviance, architecture organisationnelle, régulation financière, institutions de microfinance


JEL classification: G21, G33, G34


LAPTOP, LIVESTOCK DRAWINGS AND RICEWINE: A DEMAND ANALYSIS FOR LIVESTOCK INSURANCE IN NORTHERN VIETNAM  LAPTOP, LIVESTOCK DRAWINGS AND RICEWINE: A DEMAND ANALYSIS FOR LIVESTOCK INSURANCE IN NORTHERN VIETNAM

ISABEL FISCHER and GERTRUD BUCHENRIEDER    
Livestock plays a pivotal role for smallholder production systems in mountainous Northern Vietnam. Economic risks, especially the loss of livestock, are major reasons for slipping into poverty. Normally, insurance systems could step in to assist. In developing countries however, insurance markets are usually underdeveloped. For this study, field research on livestock insurance was carried out. We employed novel interactive computing tools and implemented an Adaptative Conjoint Analysis (ACA). One hundred and fifty five (155) farm households of different ethnic minority groups in Northern Vietnam contributed to the study. The pros and cons of livestock insurance are discussed and policy recommendations are presented to improve the overall situation of vulnerable households in mountainous Northern Vietnam.

MICROFINANCE AND POVERTY REDUCTION IN RURAL NIGERIA  MICROFINANCE AND POVERTY REDUCTION IN RURAL NIGERIA

Osaore Aideyan    

There is extensive experience in microfinance provision in Africa, but relatively few empirical studies on the social and economic benefits to clients. This paper draws on original surveys of 281 rural households in Southern Nigeria, some of which are served by two microfinance programs but have not received any loans. The statistical tests show that households with access to programs do have more substantial social and economic benefits than those without access. The evaluation holds important lessons for studies on other programs in many African countries.


JEL classification: G2, G21, N27
Keywords: Microfinance, project impact, Lift Above Poverty Organization, Nigerian Agricultural Cooperative and Rural Development Bank, Nigeria


OPERATIONAL RISK MANAGEMENT IN MICROFINANCE INSTITUTIONS - AN EXPLORATORY APPROACH  OPERATIONAL RISK MANAGEMENT IN MICROFINANCE INSTITUTIONS - AN EXPLORATORY APPROACH

Hubert Tchakoute Tchigoua and Eric lamarque    

STATISTICAL ANALYSIS OF THE PERFORMANCE OF MICROFINANCE INSTITUTIONS: THE ETHIOPIAN CASE  STATISTICAL ANALYSIS OF THE PERFORMANCE OF MICROFINANCE INSTITUTIONS: THE ETHIOPIAN CASE

TSEGAYE ANDUANBESSA    
Nowadays governments and many development agents pay great attention to the development of Microfinance Institutions (MFIs) with the belief that they are able to alleviate poverty in a very shot time. This paper tried to give statistical insight in measuring the performance of MFIs in Ethiopia and the determinants of their performance. A cross-sectional data from 2006 fiscal calendar balance sheet of 26 MFIs in the country is used to carry out the study.
Factor analysis (FA) of performance indicators revealed that the deposit mobilized from clients, the number of active borrowers, and the gross loan portfolio load high on one component, establishing the outreach performance dimension of the MFIs in the country. On the other hand, profit margin, OSS, return on asset and gross loan portfolio-to-total asset ratio load high on the other component, establishing the financial sustainability dimension. In order to identify the determinants of the performance of the MFIs, a seemingly unrelated regression (SUR) model was fitted on the outreach and sustainability dimension scores synthesized by FA. The number/types of financial services rendered, the number of staff per branch and their capital are found to determine the outreach performance of the MFIs in the country. It was also noted that capital has an adverse impact on the outreach efforts of the MFIs. Moreover, the financial viability of the MFIs is found to be highly determined by the average amount of loans disbursed to individuals, the financial revenue ratio and the cost per borrower ratio.


STOCK MARKET AND PRIVATE CONSUMPTION IN MALAYSIA  STOCK MARKET AND PRIVATE CONSUMPTION IN MALAYSIA

Mansor H. Ibrahim    

The paper analyzes the influence of the stock market on aggregate consumption in Malaysia using a battery of time series approaches – the ARDL cointegration test, an error-correction modeling and a vector autoregression (VAR). In the analysis, real consumption is specified to depend linearly on real income and real stock market wealth as measured by real market capitalization. The ARDL cointegration test indicates the presence of a long-run relationship between consumption and its determinants, real income and real stock market wealth. At the same time, we also note positive short-run coefficient of current changes in real stock market wealth in the dynamic equation of real consumption. Finally, the variance decompositions and impulse-response functions simulated from the estimated VAR indicate a causal pattern that runs from real stock market wealth to real activities (consumption and income). Accordingly, based on these findings, the stock market wealth effect is unequivocally supported in Malaysia.


THE CHANGING PHASE OF FARM CREDIT DELIVERY IN NIGERIA: A REVIEW OF NATURE, CHARACTERISTICS AND ACCESSIBILITY  THE CHANGING PHASE OF FARM CREDIT DELIVERY IN NIGERIA: A REVIEW OF NATURE, CHARACTERISTICS AND ACCESSIBILITY

S.O. OLUBIYO    
An inadequate and inappropriate credit facility is widely regarded as the main constraint to the development of agricultural business enterprises in rural economies. There is a limit to which the players in the sub-sectors can exert their full potentials because of the limitation imposed by the resources at their disposal. Farmers have been exploring different avenues for ages to augment their meager savings and manage their farm business operations. A close examination of these avenues and ensued farmers patronage reveals three distinct but non-exclusive phases. Farming operations improved as farmers moved through these successive phases to access credit.

THE IMPACT OF ASIAN FINANCIAL CRISIS ON BANK PERFORMANCE: EMPIRICAL EVIDENCE FORM THAILAND AND MALAYSIA  THE IMPACT OF ASIAN FINANCIAL CRISIS ON BANK PERFORMANCE: EMPIRICAL EVIDENCE FORM THAILAND AND MALAYSIA

FADZLAN SUFIAN and MUZAFAR SHAH HABIBULLAH    
By using bank level data this paper examines how bank specific characteristics and the macroeconomic environment affects the profitability of the Thailand and Malaysian banking sectors over the period 1992-2003. All the variables are significant although their impact is not always the same for Thailand and Malaysian banks. We find that liquidity is negatively related to Thailand banks’ profitability, but not in Malaysia, while network embeddedness has negative relationship with Malaysian banks, but not Thailand banks. As for the impact of macroeconomic indicators, we find that economic growth is positively related to Thailand banks’ profitability only during the pre-crisis period. The impact of inflation is positive on Thailand banks’ profitability during the crisis and post-crisis periods, while inflation is negatively related to Malaysian banks’ profitability during the crisis period. We find that the Thailand banking sector has been relatively more profitable during the pre-crisis period, while the opposite is true for the Malaysian banking sector.

THE IMPACT OF CURRENCY UNIONS ON TRADE: LESSONS FROM CFA FRANC ZONE AND IMPLICATIONS FOR PROPOSED AFRICAN MONETARY UNIONS  THE IMPACT OF CURRENCY UNIONS ON TRADE: LESSONS FROM CFA FRANC ZONE AND IMPLICATIONS FOR PROPOSED AFRICAN MONETARY UNIONS

CHRYSOST BANGAKE and JUDE EGGOH    
In this paper we explore whether the two existing currency unions in CFA Franc zone have a significant increase in trade between members. Furthermore, the impact of regional agreements which are only based on preferential trade (ECOWAS, COMESA, and SADC) is also analysed. Using panel techniques for 35 countries in Africa on the period 1980-2005, our empirical results strongly support that existing currency unions in CFA zone enhance significantly the trade between members. However, the Rose effect is more substantial in UEMOA than in CEMAC. Our results show that during their implementation the regional agreements which are only based on preferential trade (ECOWAS for example) have generated a little increase in trade compared to countries in currency unions. These results are highly interesting and have some policy implications for the proposed monetary unions in Africa.