Microfinance

Question 1

Advantages

Answer 1

lowers default rates and transfers agency cost
reduces adverse seleciton in credit market
circumvents ex ante moral hazard
reduces ex post moral hazard
improves efficiency and equity as poor can borrow

Question 2

Limitations

Answer 2

• hard to force people to enforce social sanctions, in urban sector where most people are anonymous might not be as affective
• screening is costly for individuals, difficulty in finding artners
  monitoring - costly for individuals if not near
  collusion - borrowers in group lending may collude against bank

Question 3

How many houeholds does MFI serve?

Answer 3

200 million

Question 4

Why are women good to target?

Answer 4

easier to monitor as stay at home, more reliable with payments, more sensitive to social sanctions