Empowerment and Poverty Alleviation:

Transcription

1 Empoement and Povet Alleviation: Effects on Tageting Women in Developing Conties b Andes Snnås Gndesen Maste s Tesis Tis tesis is anded in to complete te degee Maste of Social Economics Univesit of Begen, Depatment of Economics Novembe 009

2 Acknoledgements Acknoledgements Tee ae man people o deseve acknoledgement in sppoting me ding te peiod I ave oked it tis tesis, and not all of tem ae mentioned ee. It as been a long oad, and I ave to tank m patient speviso S. Qaml Asan and te Depatment of Economics. Special tanks ae igtl given to Cecilie Skjellevik, o as offeed te necessa sppot, feedback and love. I also oe a geat debt of gatitde to Katine Vellesen Løken and Jonas Gade Cistensen. Witot tei academic and social sppot, tee old not be an tesis. Finall, Vida Sletteag offeed mc appeciated feedback on stcte, langage and content. Andes Snnås Gndesen, st of Decembe 009 ii

3 Abstact Abstact Empoement and Povet Alleviation: Effects on Tageting Women in Developing Conties b Andes Snnås Gndesen Univesit of Begen, 009 Speviso: S. Qaml Asan In tis tesis I assess te poblems and soltions micofinance instittions face en enteing a al cedit maket caacteized b infomation asmmet and lo degee of enfocement possibilities. Banglades and te Gameen tpe of micocedit ae sed as eamples en descibing o soltions ave been applied. Standad teoetical models on advese selection and moal azad ae assessed in ode to give an ndestanding on o micofinance instittions ave been addessing te vaios callenges en designing cedit contacts in developing conties. A poblem tat as not et been popel assessed in available liteate is o oseolds make te decision to obtain cedit. I so tat nde cetain assmptions te applied sepaate spees bagaining model eplains omen ma be kept ot of te cedit maket b tei sband. Tis as polic implications tat callenge te contact design sed b te Gameen Bank and man ote micofinance instittions. Discssions on micofinance oteac ave to conside inta oseold decision making in ode to eac tei dal goal of alleviating povet and empoeing omen. Te applied model sos tat an infleible appoac toads tageting omen ma lead to a sitation ee omen ae kept ot of te maket fo micocedit. iii

4 Table of Contents Table of Contents Acknoledgements... ii Abstact... iii Table of Contents... iv List of Tables and Figes...v Capte... Intodction... Otline...4 Capte Micocedit...5. Oteac...6. Te Gameen Bank Gameen tpe micocedit...9 Capte Te Callenges Advese Selection Moal Hazad Competition Te Soltions Pee Selection and Advese Selection Pee Monitoing and Moal Hazad Handling Competition and Ote Contactal Feates...6 Capte Micofinance and omen Tageting omen Hoseold Decision Making Bagaining Models...33 Capte Conclsion...45 Refeences...47 iv

5 List of Tables and Figes List of Tables and Figes Table Micofinance Oteac Table Geogapical Distibtion of micofinance instittions and clients...7 Table 3 Nmeical eample advese selection...4 Table 4 Base nmbes gop fomation game... Table 5 Te Gop fomation game... Fige Active booes Fige Clients eaced b micofinance Fige 3 Sae of female membesip in Gameen Bank, Fige 4 Cange in tilit it access to cedit...4 v

6 Capte Capte Intodction In 006, D. Moammed Yns and Gameen Bank ee aaded te Nobel Peace Pize fo tei effot in ceating economic and social development fom belo (Noegian Nobel Committee, 006). Ts, all ees ee pointed toads micofinance and access to micocedit as a a to beak ot of povet. Sbseqentl, micocedit as also been named as a tool to empoe omen in developing conties (e.g. Hasemi, et al., 996 and Pitt, et al., 006) Tageting omen as evolved as a eslt of continosl canging stategies, and te sae of female paticipants in micofinance NGO s as inceased steadil since moden micocedit as intodced (i.e. Goetz and Sen Gpta, 996). Te motivation fo tis tesis comes fom te going acknoledgment of te sccess te micocedit instittions ave ad in tageting omen ove te last 5 eas. Micolende pionees, sc as te Gameen Bank in Banglades, discoveed tog epeience tat female clients ee moe eliable cstomes, most notabl becase te ad bette epament ecods compaed to male booes. Fte, eseac as son tat female booes make ige contibtions to tei on famil s inceased elfae tan male booes (Kandke, 003). Ote eplanations to omen make te pefeed clients ma be tat te ave esticted access to maket labo; te ae moe likel not to ave access to ote soces of cedit and tat te micoloan can empoe omen in tei on oseold (Pitt, et al., 006). In sm tis sto intitivel sonds good; b tageting omen not onl does te lende eceive a ige epament atio, it also podces bette elfae otcomes. In Banglades, 40 pecent of te poplation lives beneat te national povet line. Beaking te nmbes fte don, e find tat 50 pecent live fo nde $.5 a da, and a total of 8 pecent nde $ a da (UNDP, 009). Wit a poplation of 57.8 million, at least 63 million people live beneat te national povet line, and a lage sae of te poplation lives jst above. Still, Banglades as managed to edce povet significall ove te last eas, it a dop fom 49 pecent in 000 to 40 pecent in 005 (Te Wold Bank, 008). Measing gende elated povet is difficlt, bt tee ae eseac tat sggest te aond 70 % of te old s poo ae omen (UNDP, 996). Te data fom te UNDP Hman Development Repot 009 efes to te most ecent ea available in te peiod 000 to 006 fo te national povet line, and fo te peiod 000 to 007 fo te $.5 and $ data.

7 Capte Te maket penetation to be ndestood ee as te sae of clients seved to potential clients of micofinance vaies beteen conties, and Banglades is b fa best in class. A maket penetation of 35 pecent (MIX and Intellecap, 009) still eveals te ge potential fo got, and te vast majoit of potential clients ae not seved b a micofinance instittion (abbeviated MFI). Tee is a need to evalate te maket penetation is not ige, and m take on tis is to evalate if tageting omen ma be one eplanation on te Bangladesi maket fo micofinance sos signs of satation. Fige sos te development in active booes itin te fo lagest MFIs in Banglades fom 00 to 008. Togete, tese fo instittions accont fo ove 87 pecent of te active booes itin a micofinance pogam in Fige Active booes Active booes (000) Yea BRAC Gameen ASA PROSHIKA Te epet opinion on o micocedit can bing abot povet edction as ell as social development (e.g., empoeing omen) is tat te to objectives ae indeed inteconnected. Alleviating povet is te goal, and empoeing omen ma be seen as a means to acieve tis goal. In tis tesis, I povide a evie of te liteate bot teoetical and empiical Sae of active booes to poo (potential booes) in Banglades, data fom 007 pblised in Asia Micofinance Analsis and Bencmaking Repot Estimated sing data fom Mi Maket (009). 4 Data fom 008 fo PROSHIKA ee not available at te time te tesis as itten.

8 Capte on te vaios callenges o obstacles tat te micocedit instittions face, and te possible soltions tat ave been emploed to ovecome tese obstacles. Witot mecanisms designed to ok aond lack of collateal, advese selection and moal azad tee old be no maket fo micocedit. Wen te dsfnctional maket stats fnctioning as a nomal maket fo cedit, te net step is to assess o acieve te best otcome en distibting cedit. Tee ae evidence tat tageting omen inceases economic got, bt tageting in itself ma conflict it te desie to elp as man as possible on tei a ot of povet. I so it te applied model tat te eslt of tageting omen ma conflict it te desie to empoe omen, and tat in te sband epeience a loss in tilit as a diect eslt fom te ife s inceased bagaining poe. Tis loss in tilit gives te sband incentives to veto te loan if e is able to do tat. In te analsis in capte 4, I assme a patiacal societ ee te sband is able to den is ife access to cedit. Wit a nao tageting le, one effectivel eliminates a lage sae of potential cstomes, namel men. Even tog tee ae eigt agments in favo of tageting omen, bot te distibtional effect and te consideation fo economic effectiveness need to be addessed befoe one decides on te design of te tageting le. A non-pofit micofinance instittion s goal sold intitivel be to eac as man clients it ot pojects as possible, in ote ods te sold be client maimizing 5. In Banglades, te ome of moden micofinance, e find a stongl patiacal societ (Alam, et al., 000). I find tat itin taditional families it ma not alas be in te sband s best inteest to allo is ife to ave access to micocedit pogams. M eslts sggest tat te ve goal of tageting omen it micocedit stands in violation of te establised cltal noms of patiacal societies. Te eslt cold be tat potential female booes ae kept ot of te cedit maket, even tog tese omen ave pojects ot financing. If so, te contact design in man micofinance instittions sold be etogt. M findings ae not ncontovesial. Te fact emains tat tageting omen as poven to be a sccess compaed to ote stategies (e.g. Kevane and Wdick, 00) 6, and is no te most pevailing stateg fo micofinance instittions. To te best of m knoledge, tee is 5 Tee ae of cose constaints tied to fnding, pesonnel, etc. 6 At an eal stage, te Gameen Bank tied gende sepaated gops, bt no gende bias in tageting clients. Female gops soed bette epament ates, and ts omen became te pefeed client. Kevane and Wdick (00) find tat omen otpefom men in a MFI in Gatemala. 3

9 Capte vitall no analtical liteate on te isse of tee ae poo omen o ae eligible bt do not paticipate in micocedit ile ote omen in a simila sitation do. Tis tesis attempts to povide an analtical fameok to addess tis isse. Te eslts fom te model developed in Section 4. cciall el on ic social and cltal contet one assmes, and te model is moe applicable to stongl patiacal societies. Otline In capte I ill stat it a bief ovevie and eplain some of te special feates of micocedit. In section. I offe pdated data on micofinance oteac, and I find a sbstantial got in active booes in te developing old ove te last 5 eas. In section. tee is a sot evie of te Gameen Bank and te Gameen tpe micocedit. In capte 3 I ill addess te vaios callenges MFIs face en enteing te al cedit maket in developing conties, and ic soltions te Gameen Bank and otes ave applied to ovecome tese callenges. Basic models on advese selection and moal azad ill be evieed in sections 3.. and 3.. espectivel, and in section 3..3 te ate special effects of competition in te maket fo micocedit ill be discssed. In capte 4 te Gameen Bank s and ote MFI s decision to taget omen ill be addessed. A sepaate spees bagaining model is pesented in section 4. to eplain nde ic cicmstances a sband ill ave incentives to den is ife access to micofinance, even tog te poject financed b te loan ill aise te total oseold income. I find tat micofinanced pojects eqie etns ove a cetain level to ense tat te sband ill ave a tilit gain b letting e ife ave access to micocedit pogams. Te model also eplains te sband ill ave incentives to den is ife access to micocedit de to te sband s tilit loss en te epected etn on te poject is lo. Te calclations beind fige 4 ae pefomed in MS Ecel it inpt fnctions fom eqations (8), (0) and (). Capte 5 smmaizes te findings in tis tesis. 4

10 Capte Capte.0 Micocedit Neoclassical got teo pedicts tat capital ill flo to ee it eceives te igest etn. Given a podction fnction it diminising maginal etns to capital, basic economic teo tells s tat tee sold be no need fo micocedit becase it ill flo to ee it eceives te igest maginal tilit. Hoeve, e do not need to go into deep economic analsis to see tat tis is not te case in ealit. Investos ae not illing to offe capital to te developing old de to among ote agments isk affiliated it sifting political envionment; nclea popet igts; lack of collateal and lack of local knoledge. In ote ods, capital makets ae impefect. Lcas (990) povides a ve descibing eample on o te capital makets old beave accoding to neoclassical models of got and tade. Using te Cobb-Doglas constant etns tecnolog, e motivates te eade b soing tat te maginal podct of capital in India mst be 58 times te maginal podct of capital in te United States 7. If cedit makets ee fee, all investment old appen in India o ote conties it loe podction pe capita. His eample poves te sotcomings of neoclassical got teoies, and te Lcas citiqe as been ve impotant fo te development of ne teoies toads economic got and development. In tis capte I ill addess te basic feates of micocedit, and I ill concentate on Banglades and te Gameen Bank. Banglades is consideed to be te cadle of moden micocedit, and te Gameen Bank as ad a sbstantial inflence on liteate and ote micofinance instittions te last 5 eas. Tis does not mean tat ote instittions and polic makes ave not been inflential in ndestanding tat banking fo te poo migt impove elfae. 7 Coected fo diffeences in man capital, te maginal podct of capital is five times ige in India compaed to te U.S. 5

11 Capte Micocedit is a idel sed tem, bt te od itself as invented in te 970 s (Yns, 008). Tee eist vaios kinds of micocedit pogams, tog te all sae te commitment to seve clients tat ae eclded fom te fomal banking secto (Modc, 999). Micocedit is small loans tat geneall ae given to finance self-emploment activities, and te goal of tese loans is to elp te poo ot of povet. Even tog it stated it small loans, moe MFIs no offe savings and insance as pat of te package. Some banks even demand savings in peiods of elative abndance 8. Access to financial sevices is believed to incease te possibilit to smoot and opefll incease income. In tis tesis I ill focs on micocedit, moe specificall te Gameen tpe micocedit. I ill etn to te special feates of tis kind of cedit in section.... Oteac Since D. Yns fist steps toads at e no kno as te Gameen Bank in 976, te got in MFIs and tei clients ave been sbstantial. Table sos micofinance coveage as epoted to te Micofinance Smmit Campaign (Dale-Hais, 009). Table Micofinance Oteac End of ea Total nmbe of Instittions Total nmbe of clients eaced (millions) Nmbe of pooest clients epoted (millions) , , , , , , , , , Pecentage of pooest clients epoted 8 Te Gameen Bank s total deposits amont to 45 pecent of te goss loan potfolio (Mi Maket, 008). 6

12 Capte Of te 54.8 million epoted clients, 68.9 pecent ee of te pooest clients, defined as ( ) te bottom alf of tose living nde tei nation s povet line (Micocedit Smmit 003). Fige sos te development in te sae of pooest clients eaced fom 997 to 007. Fige Clients eaced b micofinance Clients eaced (million) End of ea Total nmbe of clients (millions) Nmbe of pooest clients epoted (millions) Te developing old is b fa ee micofinance as its stongold. Tis is no onde, as most individals in moe developed conties ave access to income smooting financial sevices fom bit. Still, tee ae micofinance instittions tageting small entepenes in at e conside to be ic and igl developed conties, sc as te United States (Sceine and Modc, 00). Tee is a distinct diffeence beteen micoentepises in te developed and te developing old. In te United States it is moe common it micoentepises tat podce non-taded sevices; in te developing old bot sevices and maket goods ae podced (Sceine and Wolle, 003). Asia and te Pacific is te egion ee one finds most micofinance povides and clients (Dale-Hais, 009), folloed b Latin Ameica. Table Geogapical Distibtion of micofinance instittions and clients Nmbe of pogams Nmbe of total clients in Region epoting 007 (millions) Asia and te Pacific,77,7 96,5 Nmbe of pooest clients in 007 (millions) 7

13 Capte Developing Wold Totals ,7 06, Banglades as ogl 3. million active clients as of 008. Banglades is also ome to some of te lagest micofinance instittions in te old, most notabl te Gameen Bank, te Banglades Ral Advancement Committee (BRAC) and te Association fo Social Advancement (ASA). Togete tese tee instittions seve neal 8 million clients (Mi Maket, 009).. Te Gameen Bank Te Gameen Bank of Banglades is mentioned as an ecellent illstation of o cedit can be povided to te poo ile minimizing te isk tat esoces ill be asted (Todao and Smit, 006). It as also been aaded mc attention intenationall, most notabl it te Nobel Peace Pize in 006. Lessons leaned fom te Gameen Bank ave sped ote micofinance instittions it eite te same o an adapted metodolog bot in Banglades and te est of te developing old. In 008, te Gameen Bank seved ove 6. million active booes, and te goss loan potfolio amonted to appoimatel 64 million $. Te epansion of micofinance instittions as been sbstantial togot te developing old since te 980s, and te Gameen Bank as been one of te flagsips in tis development. Fomall cateed in 983, Pofesso Moammed Yns baincild fom 976 ad become a ealit ic as to set te standad fo micofinance pogams ding te folloing decades. Yns became convinced tat te lack of access to cedit as one of te most impotant constaints on economic pogess, and anted to demonstate tat it as possible to lend to poo itot psical collateal. Te fist loans ee gaanteed b Yns pesonall, and afte a seies of epansions te Bangladesi govenment ee convinced of Gameen s vale, ts te Gameen bank became a fomal financial instittion. 8

14 Capte.. Gameen tpe micocedit Te most notable feate of te Gameen tpe micocedit is tat it is given onl to gops of booes, specificall to gops of female booes 9. In fact, some claim tat tis is te eason fo its sccess (e.g. Stiglitz 990). As e ill see in capte 3, te gop-lending model mitigates mc of te infomation asmmet tat comes it banking in an neglated aea. Te mission of Gameencedit is to elp te ve poo to elp temselves ot of povet tog self emploment income geneating activities. In addition, te Gameen Bank offes cedit to elp te ve poo bild oses tat aise tei living standad. Loans ae elativel small 0, and instalments ae to be paid eekl o bi-eekl. Te loan offices fom te Gameen Bank ae to meet booes ee te booes ae, tat is, te meet in centes in o nea te villages ee te clients live. Te Gameen Bank as a stong focs on social development, and as a set of les tat te clients mst adee to. Tese les compise of osing qalit and living conditions; going cop; famil planning; edcation; in sot 6 decisions tat ae meant to elp te clients ot of povet. Te gop membes ae all tained b te bank. Te taining consists of leaning abot bank pocedes, infomation on te gop savings pogam, te ole of te cente cief and te caipeson of te gop, bookkeeping, and if eqied, o to ite tei signate. Te gop-lending model invented b Gameen as based on epeimentation (Todao and Smit, 006). Initiall, loans ee given to individals, bt tis poved to eqie too lage esoces en it came to monitoing se and epaments. Lage gops of ten pesons ee tied, and poved to be too lage fo intimate and infomal pee-to-pee monitoing to be effective. Te gop lending model of five pesons poved to be te most efficient in pactice. Te Gameen Bank is as of Novembe 009 oganized into,560 bances tat in tn seve 84,787 villages and 7.9 million clients, 97 % of ic ae omen. Te bances ae set p 9 Tee ae eceptions to te le. In Novembe 009, male clients make p 3 pecent of total clients. 0 In 008 te aveage loan balance pe booe in te Gameen Bank as $ 03. B compaison, ASA s and BRAC s booes ad a balance of espectivel $ 79 and $ 0. 9

15 Capte it a banc manage and a nmbe of cente manages, and te banc coves an aea of abot 5 to villages (Gameen Bank, 009). It is mandato tat te staff and te manages visit villages to familiaize temselves it te envionment te ae going to seve, and ca ot te impotant ole of infoming pospective clients of tei ppose and fnctions. Gops of five clients ae self-fomed, and to of te gop s membes eceive te initial (individal) loans. Onl if te to pesons compl it and act accoding to te les set b te bank, ill te ote membes of te gop be eligible fo loans ts te pee-pesse is establised as te sole collateal fo te bank. I ill etn to a moe fomal discssion aond gop fomation in capte 3. Financial incentives to epa te loans ae ensed b inceased access to loans en te cent loan is epaid, and te gop can also ean a 5 % incement in loan size b attending all activities and all gop membes epa tei loans. An additional incement can also be eaned en all booing gops in a cente manages to keep pefect ecods. Te Gameen Bank claims to taget te pooest of te poo, and te paticipants mst ndego a to-eek taining session befoe an loans ae issed. Te sessions ae folloed b eekl gop meetings it a bank office. Te bank epots a 96.8 pecent epament ate on tei Novembe 009 epot (Gameen Bank, 009), a ate tat is sbject to some contoves de to fo instance te fleibilit of te bank en it comes to efinancing te loans en lendes meet financial difficlties bt in an case, te ate is fa ige tan te national aveage fo bank loans to mc ealtie booes (Todao and Smit, 006). Te Gameen Bank also pomotes saving as a mean to edce te isk of income flctations. Often te loans ae tied to saving eqiements o incentives. Not all clients ae active booes; some clients ma ave onl savings and/o insance. In fact, end of ea 008 te Gameen Bank epoted 7.67 million clients, all it deposit acconts. Te aveage deposit as $, spassing te aveage loan balance it ove 8 pecent. 0

16 Capte 3 Capte 3 In tis capte I ill stat it addessing te difficlties MFIs face en enteing al cedit makets. I ill evie te models fond in micofinance liteate tat teats te poblems and te soltions te Gameen Bank as applied, and fte discss te poposed soltions. Te motivation beind tis is to povide a backdop on o MFIs ave managed to ok tei a aond obstacles p ntil no, and to so tat MFIs tog tei innovativeness and abilit to adjst along te oad ave managed to eac a sbstantial amont of booes o befoe as deemed to be nanted clients b te fomal banking secto. Tis abilit poves ell fo te fte. Continosl edesigning contacts to solve ne callenges ma pove to be impotant to impove micofinance oteac, as e ill see in te net capte. Te idea beind intevening in cedit makets is te belief tat one can impove bot efficienc and aggegated elfae in doing so. Beind tis belief is an assmption tat cedit makets ae not fnctioning as te sold. Te agment beind impoving efficienc is tat tee ae potentiall podctive booes on one side and financial instittions it abndant fnds on te ote side. In sot: Te maket fo allocation of capital does not fnction, and tis maket faile ma ave seveal eplanations. In te folloing I ill addess tese eplanations, and descibe o MFIs ave design mecanisms to ok aond tem. 3. Te Callenges An MFI faces some significant difficlties en opening bsiness in an nknon teito. Tese poblems ae based on te lack of collateal te booe can pt p; ig tansaction costs; infomation asmmeties beteen te pincipal (te MFI) and te agent (te booe); and fomal and moal difficlties en it comes to enfocing contacts. Accepting tat tee is a cedit maket faile in al aeas of developing conties, decisions on if and o to intevene mst be addessed. Te al cedit maket in developing conties is often caacteized b local monelendes opeating nde a limited access to fnds. Ts, intodcing financial instittions it bette access to fnds migt impove oteac b allocating cedit to a lage gop of people. Stiglitz (990) and otes point ot tat even tog local monelendes sometimes ae seen as eploitative de to ig inteest ates, tese

17 Capte 3 eploitative ates migt be a eslt of ig defalt ates, coelation beteen defalts as te booes often ae sbject to smmetic socks, and te ig costs elated to sceening of booes and follo p on loans. As mentioned above, an otside MFI faces tese callenges en enteing tis maket, in addition to te moal and etical callenge: Wat actions can a povet alleviation focsed MFI ndetake to minimize defalt on loans tat does not conflict it its goals? To sece te loans given to individals, taditional banks eqie collateal. In developing conties, available collateal ma be non-eistent, o te offeed collateal is of no vale to te MFI. Fo an MFI ose goal is povet alleviation, seizing popet o assets fom te poo en defalting on tei loans as ote implications tat often diectl conflicts it te MFIs ve eason fo eisting. Leaning on tese agments, it is safe to sa tat booes ave limited liabilit, and tat te cannot follo a epament sceme tat eceeds tei cent income (Amendaiz de Agion and Modc, 005). 3.. Advese Selection Te lack of local infomation ma lead to te poblem it advese selection. A bank o an MFI itot local infomation is not able to select te igt isk pofile in tei potfolios. Tis often contasts it te infomation local monelendes ave, o can sepaate booes accoding to iskiness, and cage inteest ates accoding to te booe s isk pofile (Stiglitz, 990). Becase of te infomation asmmeties, an MFI cold be pt in a position ee it as to cage eceedingl ig inteest ates and b tis dive te good booes ot of te maket (Amendaiz de Agion and Modc 005). A nmeical eample tat sos tis mecanism is pesented in table 3. A simplified model of advese selection analzes te agenc poblem. Te MFI as no a to decide ic booe is safe and ic is isk. Riskiness is ineent, and te individal as no incentives to tell te MFI if se is isk since te MFI ten old ead e it a ige inteest ate. Te fameok sed in te evie is fom Amendaiz de Agion and Modc (005).

18 Capte 3 In te model e ave to individals; one isk and one safe. Eac individal can invest L (L = fo simplicit) amont of booed mone in a poject. Te safe booe ill eceive evene of S it pobabilit p =. Te isk booe eceives evene R it pobabilit p, ee 0 < p <. If te isk individal sold scceed, se ill eceive a ige etn on te poject tan te safe individal. If te poject fails, tee ill be no possibilit to epa te loan becase of no seizable collateal, and te loss as to be absobed b te MFI. Te epected etn on eite poject is assmed to be eqal, and b tat it is eas to see tat te isk individal s poject as to ield a ige etn en sccessfl ( p = > ). R S R S Te MFI is assmed to aim fo zeo pofit in a competitive maket 3. Te bank is ten committed to cove its goss cost of capital, k. Te goss cost is assmed to be ige tan L becase of costs of fnding, administation etc. We fte assme tat bot clients ave a poject ot fnding; tat is tat bot te isk and te safe ield epected evene of = p k. S R > Te pesence of te isk individal in te econom means tat te MFI as to cage a ige inteest ate tan k to beak even. Te MFI knos tat in te poplation (n = in te model), 50 pecent is of te isk tpe. Bt te ave no possibilit to tell ic one, and tis means tat te eqied goss inteest ate as to be aised fo bot individals fom k to R ee R > k. If q is te sae of safe individals, ten q mst be te sae of isk individals. Te eqied goss inteest ate as to be set so tat te epected etns fom bot individals cove te goss cost of capital: k = [ q ( q) p] R. Solving fo R gives s te eqied goss inteest ate: k R = [ q ( q) p] () Tis is te goss inteest ate (loan pls inteest) eqied to ense tat te MFI beaks even. Advese selection appeas en te goss inteest is set at sc a ig level tat te safe booes do not find it otile booing an longe and itda fom te maket. Te 3 Tis is to simplif te analsis, and in man aeas it is also close to ealit (see fo instance McIntos and Wdick, 00). 3

19 Capte 3 nmeical eample in table 3 illstates te pinciples of Maket fo Lemons (Akelof, 970). In te eample tis applies fo all scenaios: Loan size is L = $ 00 ; te epected goss evene of te booe s poject is $00; te oppotnit cost (te vale of odina labo) in te same peiod is $44, and te cost of capital k fo te MFI is $40. Te faction of safe to isk booes in te poplation is ½. Loan size is set at $00 fo illstation se, bt tis is also close to te aveage loan size in bot te Gameen Bank and in BRAC. Te cost of capital is set ig becase of te consideabl ige cost it is to povide small and man loans tan compaativel lage and fee. Table 3 Nmeical eample advese selection Goss evene if sccessfl Pobabilit of sccess, p Reqied inteest ate, Epected net evene Safe Risk Safe Risk Safe Risk ,3 Aggegated social spls Fom te potetical data in table 3 e can etact some inteesting eslts to illstate mecanism tat ma lead to advese selection. As a stating point, e assme tat bot te safe and te isk tpe ave pojects ot financing. Te safe poject ields te same evene in eac scenaio, bt e incease te iskiness and ts te eqied goss evene of te isk poject gadall fom te fist scenaio (Safe /Risk ). In te to fist scenaios, bot te isk and te safe poject ield positive epected net evene, and aggegated social spls ae eqal to 3 in bot scenaios. Ts e cannot obseve an maket inefficienc at tis stage. We see fom eqation () in calclating te eqied inteest ate, tat te individals ndetaking te safe poject sbsidize tose ndetaking te isk poject, bt tee is no efficienc loss becase of te MFIs inabilit to diffeentiate beteen te to tpes. Te eqied inteest ate inceases fom 43.6 pecent to 5.4 pecent in te second scenaio, bt bot individals still eceive positive evene fom te poject. 4 Appoimate vales fo illstation se onl. Real vales ae / Te eample is adapted fom a simila model in Amendaiz de Agion and Modc (005). 4

20 Capte 3 Inceasing te iskiness of te isk faction even fte in te tid scenaio, e ave some inteesting eslts. Te epected net evene fo te safe poject (Safe 3) is negative de to an even ige eqied inteest ate to beak even, and te ational coice fo te safe individals is teefoe not to ndetake te poject bt ate stick to odina labo (te actal point of safe booes leaving te maket in tis eample is en te eqied inteest ate 56% ). Tis soltion is inefficient, as e said ealie tat bot tpes ave pojects ot fnding. Wen safe booes no longe ant to boo, te leave te maket. Te MFI obseves tat alf of tei clients ae no longe inteested in loans at te offeed inteest ate. Wen no coss-sbsidizing takes place, te isk faction as to bea all te isk. Te inteest ate inceases fte fom 5.4 to 86.7 pecent in te last scenaio. Te isk individals still invest in tei pojects, as epected net evene is still positive, bt te ae ose off tan en te safe booes still ee in te maket. We also see tat te aggegated social spls calclated as te sm of te epected net evene fo te safe and isk booe is edced b 50 % en te safe faction leaves. Woking aond advese selection b designing mecanisms to tilize available local infomation as been named as one of te sccess citeia of te Gameen Bank, and e ill contine to addess tis in te model in section 3.. afte fte addessing te callenges te MFI encontes in tei ok. 3.. Moal Hazad Te moal azad poblem aises becase te booe can coose to itold infomation o defalt on is epaments. Te MFI as little o no infomation on te qalit of te booe, and in developing conties te tpical booe cannot pt p collateal to compensate fo tis, eite becase of lack of land o de to social and legal easons (Amendaiz de Agion and Modc, 005). Te MFIs ave little o no possibilit to obseve actions caied ot b lendes, so afte te cedit as been paid ot, te lende as lost contol. Oppotnistic actions pefomed b te booe afte te cedit is eceived, bt befoe te poject etns ae ealized, ae called e ante moal azad. Tese actions can ave a diect effect on te otcome of te poject, and in combination it no collateal tis can lead to 5

21 Capte 3 inefficienc. A basic model ma be otlined as folloed (Amendaiz de Agion and Modc, 005): An individal it no initial ealt and no ote collateal can invest a booed sm of mone, L ( L = fo simplicit). In te model e ave onl one peiod, ic limits te lende s oppotnit to tilize mecanisms tat ill be addessed at a late stage. Te booe is faced b te folloing possible scenaios: epend effot at cost c to obtain positive pofits iit pobabilit p =, o epend no effot and no cost to obtain pofits i it pobabilit p <. Te lende s cost of capital is k, and te eqied goss inteest ate (pincipal pls inteest) is R, and R > k. Te booe ill ave no oppotnit to flfil te epament obligations if te poject is nsccessfl. Te booe ill onl spend effot at cost c if: R c > p( R) Solving fo R e ave: R < c p () Te goss inteest ate R as to sta loe tan c p to ense tat te booe ill se an effot. If te inteest ate is aised beond tis, te booe ill ave no incentives to se effot at cost c, and te lende ill lose L pls te cost of obtaining capital if te booe is nsccessfl. To fte evalate e ante moal azad ill lead to an inefficient allocation of fnds, e ill conside a sitation ee e ave an e ante efficienc. Te lende s cost of capital, is less ten te cetain otcome c (keeping in mind tat te pobabilit is eqal to ) en te booe epends effot. In tis sitation ee k < c te booe sold be given a loan, bt te lende still as no a to ense tat te booe ill spend an effot. If te lende ten as to conside te pobabilit of loss ts making te cost of capital ige 6

22 Capte 3 te inteest ate ma be set at a level ee te booe as no incentives to flfil te epament obligations. Te inefficient otcome de to e ante moal azad ill be tat te booe cold get te loan if a cedible commitment to spending effot to ense otcome c > k cold be made. Te booe as te coice not to etn te capital eceived fo te poject. E post moal azad aises as a eslt of eite an infomation asmmet beteen te lende and te booe o becase of eak enfocement possibilities, o a combination of te to. To model tis poblem, I ill again se te basic fameok fom Amendaiz de Agion and Modc (005). Te loan L ( L = fo simplicit) is invested in a poject it a pobabilit of sccess p eqal to. We assme tat te booe in tis case as seizable pivate ealt. Te lende beaks even it a fied eqied goss inteest ate R. Defalt on te contact is veified and enfoced it pobabilit s. Te lende is faced b te poblem of en te booe ill coose to on p to te obligations of te contact. Te booe ill coose to flfil te obligations if te incentive constaint belo is satisfied: R > ( s)( ) s Solving fo R R < s (3) Te MFI s beak-even goss inteest ate as to sta loe tan te size of te seizable collateal and te pobabilit to seize it. If tee is no collateal to be seized, no loan ill be given Competition A moe cios callenge te MFIs ae facing, is inceasing competition in te maket fo offeing micocedit. Ne maket entants, eite NGOs o commecial banks, ma ndemine te ok stated b te incmbent MFI. Histo as tagt te MFIs and 7

23 Capte 3 economists tat competition is not necessail good en one aims toads ceating te igt incentives in te maket fo micocedit. Tee ae epots on o inceased competition as lead to loe epament ates in seveal development conties, and Banglades is no eception. Te Banglades Ral Advancement Committee (BRAC) 5 eseaces Cad and Matin (00) so a clea declining tend in loan epament eglait it an inceasing nmbe of membesips in diffeent MFIs, a elationsip tat cold ndemine most if not all incentives designed in te Gameen tpe cedit contact. If lendes become competitos o eist in te same al aeas itot an eglato spevision, te teat of being eclded fom fte cedit is less cedible. Booes ma eploit tis to gain moe cedit and te isk of defalt also inceases (e.g. Cad and Matin, 00). McIntos and Wdick (005) conside a sitation ee ne MFIs ente te maket fo micocedit, and tei findings ae not positive en one look at o te pooest of te poo ae affected b an incease in competition. Leaning on te agment tat competition ill be concentated aond te pofitable booes, McIntos and Wdick find tat competition ma lead to social development oientated MFI aving to discontine cedit aimed at te pooest of te poo. Te agment is tat te ill loose te possibilit to make te compaativel ealtie booes coss-sbsidize te eqied inteest ate. In al Banglades, and in man ote developing conties, tee is no eas a to monito booes. Absence of centalized, pesonal infomation sc as cedit scoes and national identification nmbes make it difficlt to collect needed infomation. MFIs sc as te Gameen Bank ave been able to collect and contol local infomation tog loan offices and contact design, bt still McIntos and Wdick so in a moe analtical a tan Cad and Matin (00) tat an absence of eglato spevision (o moe coectl inceased infomation asmmet) ma lead to te same discontination of loans to te ve poo. 5 BRAC is as of 008 te lagest micofinance instittion in Banglades, bot in tems of active booes and goss loan potfolio, seving 6,37,50 clients it a goss loan potfolio of $ 647,938,78. 8

24 Capte 3 3. Te Soltions Seveal eplanations of te Gameen model as become te most famos and acclaimed model as been discssed in man notable aticles. Stiglitz (990) and Gatak (999) povids a fameok to ndestand te mecanisms te Gameen Bank ses o as sed in te past. Te Gameen Bank ad to ok aond poblems sc as limited liabilit; lack of collateal; ig tansaction and monitoing costs; lo epament ates and infomation asmmeties (advese selection and moal azad). B epeimentation and a continos edesign of te Gameen Bank s ole as a micofinance instittion in te al Banglades, tis MFI boast of ig epament ates and nea sstainable banking (Gameen Bank, 009 and Mi Maket, 009). In tis section I ill evie o te Gameen Bank as ovecome te vaios callenges faced b instittions seeking to offe banking oppotnities fo te poo. 3.. Pee Selection and Advese Selection In analzing o te MFI ma tilize local infomation to mitigate advese selection, Maitees Gatak s aticle Gop lending, local infomation and pee selection (999) povides a ve good fameok to ndestand te mecanisms sed b te Gameen Bank and ote MFIs tat follo te Gameen a. In te folloing I ill povide a sot and simplified vesion of is findings, togete it a nmeical eample tat ma be seen in contet it table 3 ealie in tis capte. We still ave infomation asmmeties beteen te lende and te booe. Te MFI is beaving as in a competitive maket aiming fo zeo pofit, and tee ae no seizable collateal. All loans ill ave to be offeed to all booes at te same nominal inteest ate since it is not able to diffeentiate beteen te diffeent tpes of booes. Te booes oeve, kno eac otes tpes; te ae again eite safe o isk. Te MFI cold analze eac individal s isk pofile, bt tis is costl and inefficient. Gatak sos tat even itot te MFI knoing te isk pofile of te clients, te self-fomation of 9

25 Capte 3 gops enses tat people it eqal isk pofile gop togete. A potential client ill se local infomation to team p it patnes tat ense te best otcome. Joint liabilit makes te safe tpe te bette coice, and te ill gop togete. Te isk tpes ave no ote altenative, so te ill also gop togete. Tis segegated fomation of gops is knon as assotative matcing. Gatak (999) analzes te gop fomation game it gops consisting of to individals. He sos tat is findings also appl to te standad Gameen gop of five, in fact to an gop of individals. In te simplified model, eac individal lives fo one peiod, and invests $ in a poject. Te faction of safe booes ae epesented b q, and te faction of isk booes is ( q). Te safe individals alas eceive a goss etn S it pobabilit p =, and te isk individals eceive a goss etn of R > S it a pobabilit of p < if tei poject is sccessfl. Te isk individal s poject fails it a pobabilit ( p) and ields 0 in goss etn if so. Epected etns ae again eqal; p =. Te MFI is committed to te zeo pofit condition, bt te cost of capital is R S ige tan L ( k > ) de to tansaction costs etc. Fte analsis depends on booes actall soting temselves in gops of safe/safe and isk/isk, bt fo no e ill teat tat as given. A sot fomal analsis on at ill appen it te eqied goss inteest ate R it a gop lending contact compaed it an individal contact is inteesting. Let s stat it te individal contact: Knoing tat pat of te poplation is of te isk tpe, te MFI needs to cage a ige inteest to make p fo te isk. Since te MFI is not able to distingis beteen isk and safe booes, tis eta cage ill be distibted amongst bot tpes of booes. Te eqied goss inteest ate ts inceases fom k to R. Te zeo pofit aiming MFI ill ok nde te condition fom eqation (): k R = [ q ( q) p] 0

26 Capte 3 R is te eqilibim goss inteest ate tat te MFI as to set in a maket ee bot isk and safe booes paticipate. Te safe individal ill ave to sbsidize te isk individal en te MFI is nable to tell ic is ic. In te pesence of a gop lending contact, ee safe and isk individals sot temselves togete in tei espective gops, te eqied goss inteest ate ill diffe fom te one calclated fo individal contacts. All te same conditions appl, it te eception of te individals being to and to in gops of safe/safe and isk/isk. We also assme tat te isk booes alas can epa fo te ote gop membe if se is sccessfl and te patne is not ( R > R ), ic enses onl to possible otcomes; sccess o faile. Te pobabilit tat bot isk booes ae nlck is ( p), and te pobabilit tat bot o jst one ae sccessfl is g = ( p). Te MFI no epect te folloing pament fom tei cstomes: k = R[ q ( q) g] Solving fo R: k R = (4) [ q ( q) g] We see tat te denominato nde te gop lending contact is lage tan nde te individal contact ( g > p ). Tis means tat te eqied goss inteest ate to ense zeo pofit fo te MFI is smalle en safe and isk booes gop togete in tei espective gops. Tis poves tat te MFI no as te possibilit to loe te inteest ate fom te individal contact, it te eslt tat isk booes epa moe often and tat safe booes etn to te maket. Te soting game depends on te fact tat te booes kno eac otes pofile. In te eample ee loan size L = $ 00 ; epected goss evene is $00 fo bot safe and isk tpes; te oppotnit cost fo te booe is $44; and te cost of capital fo te MFI is $ 40

27 Capte 3 fo all scenaios. Te faction of safe to isk booes in te poplation is ½ and tis is knon to te MFI. Te safe booes ae alas sccessfl, and te isk booes defalt on 5 pecent of tei pojects 6. Table 4 Base nmbes gop fomation game Goss evene if sccessfl Pobabilit of sccess Safe tpe Risk tpe 67 0,75 00 Epected goss evene Te MFI acknoledges te maket faile discssed ealie, and intodces a gop lending contact to get te safe booes back in te maket. A goss inteest ate is set to $55; tee is no seizable collateal if te poject fails and a penalt of $45 is intodced if te selected patne fails in e poject. Dependent on te nmbes given above, te gop fomation game as te folloing pa-offs: Table 5 Te Gop fomation game Patne tpe Safe Risk Booe tpe Safe Risk Te isk booe old pefe to cange gop, bt te additional eanings ae not enog to compensate te safe patne to cange gop. Te safe booe needs a compensation of at least $ to patne it a isk booe, bt te isk booe onl eans $9 b canging gop. Ts te optimal soting popet (Becke, 993, sited in Gatak, 999 p. 3) is satisfied; booes not in te same gop sold not be able to fom a gop itot making at least one of tem ose off. (Gatak, 999). Unde tis contact, te MFI ill be illing to offe loans at inteest ate set at 55 % in te eample. Te safe tpes ill alas epa $55; te isk tpes ill epa $6 in aveage. 6 Te nmbes in te eample ae fom Amendaiz de Agion and Modc (005), bt te ave been sligtl alteed to ense tat e do not end p in a sitation of indiffeence beteen booing and oking.

28 Capte 3 Tis enses tat te MFI s zeo pofit condition is (moe tan) flfilled, in fact te eqied inteest ate ma be loeed fte to entice te safe individals back into te maket. We sa fom te nmeical eample in table 3 tat it enog isk booes, te eqilibim inteest ate ill be psed ig enog to dive safe booes ot of te maket. Te joint liabilit aspect ill indce booes of te same isk-pofile to gop togete. Ten te effective booing cost fo isk and safe booes ill diffe, and te isk booes pa moe on aveage it te same contact. Joint liabilit scemes (as te goplending of te Gameen Bank) ill in tis case seve to make te cedit maket it initial infomation asmmeties beave te same a as a maket fo cedit it fll infomation (Gatak, 999). Te eqilibim inteest ate ill be edced, attacting te safe booes back into te maket. Joint liabilit is son to impove aggegate social spls ts impoving elfae. 3.. Pee Monitoing and Moal Hazad Te Gameen Bank gives loans to gops of appoimatel five individals. Te gops ae self-fomed, and eac membe of te gop is mtall esponsible (among otes Todao and Smit, 006) fo epaing te loans. B tis, te Gameen Bank is able to eploit local knoledge, tansfeing costl infomation fo te bank ove to te local fames o in tn acqie tis infomation elativel costless b simpl living nea eac ote (Stiglitz, 990). Stiglitz points ot tat pee monitoing is not itot its cost, o moe pecisel tat infomation is fee and tat pee monitoing costs in tems of inceased isk. Membes of te booing gop all bea isks tat old be bette absobed b te bank if te monitoing poblem did not eist. Stiglitz aises te qestion of ete te gains fom impoved monitoing ae ot te costs of inceased intedependence de to te joint liabilit sceme. In o economic envionment e no addess pee monitoing as a mecanism to mitigate te infomation asmmeties tat ma dive te safe booes ot of te maket, ts ceating maket inefficienc. We ae still talking abot a lende itot local infomation, and e 3

29 Capte 3 ave to neigboing booes o ave no poblem monitoing eac ote. Te lende old like infomation passed on fom te one booe if te ote is deviating fom te contact o moe pecisel if e cooses te isk poject. Te lende offes a contact ee te total amont ill be ige if te neigbo agees to co-sign te booe can obtain loe inteest ate and additional fnds. Te co-signe mst pa an amont if te loan goes into defalt povided tat e imself does not go into defalt. B intodcing tis contact, te epected tilit of te co-signe depends on is neigbo s actions. Given tei intedependence and te imposed smmet, e can assme tat te coopeate on te decision on ete to ndetake te safe o te isk poject, and tat if te coose te isk poject te ill not epot it to te lende. Te co-signe no beas a geate isk. Te zeo pofit condition enses tat te inteest ate ill adjst to leave te epected etn to te bank ncanged. Te bank mst compensate te co-signes additional isk b poviding a lage loan. Fo lo levels of cosignato pament in case of defalt, te incease in loan size is geate tan eqied to compensate fo te imposed additional isk. Ts Stiglitz concldes tat pee monitoing nde tese conditions enances elfae and ill be cosen ove te altenative itot sccessfl pee monitoing. Tis model of pee monitoing smmaize some of te main caacteistics of te model sed b te Gameen Bank. Stiglitz acknoledges te fact tat incentives to monito te actions of te ote membes of te gop ae impotant. Wete tese incentives ae povided b a cosignato penalt in case of defalt o ote scemes seem to be of no impotance. If e sbstitte te amont of mone to be paid in case of defalt it an ote vaiable tat is peceived as a cost b te booe, tis ill not cange te eslts in is aticle. Te Gameen Bank does tis b fo instance efsing access to ne loans, and b poviding incentives to act accoding to te bank s ises b intodcing inceased access to fnds if te bank s ises ae ganted b te booes. To fomall evalate o a gop lending contact affects te MFI and its elationsip toads e ante moal azad, e mst assme tat te pee as an oppotnit to monito te actions and impose some kind of penalt on tei fello gop membe if se does not spend 4

30 Capte 3 te eqied effot to ense te otcome. We ave, fom eqation (), te condition tat enses tat booes do not sik: R < c ( p) If te eqied goss inteest ate ose above tis level, te e ante poblem old aise and booes old not ave incentives to pt effot into te poject. Wit a gop lending contact, te ineqalities take tis fom: Solving fo R: ( R) c > p ( R) c R < (5) ( p ) c c We ten ave to possibilities fo te MFI. Since >, te MFI can eite ( p ) ( p) incease te eqied goss inteest ate R, o make it moe attactive fo te booes to spend effot at cost c on te poject. Joint liabilit makes one booe esponsible fo te ote, so in tis eample tee ill be no spls in a sitation if bot sik o a sitation ee one scceed it te poject and te ote defalts. To evalate o pee monitoing affects e post moal azad, e assme tat evene is seced and te booe ma coose to epa te loan o jst keep te evene. Booes ma no ongfll claim tat te poject failed, and tat te invested mone is gone. In te absence of collateal, te MFI mst absob te loss. In section 3.. on moal azad e sa tat if te bank epects tis fom te potential booes in a maket, no loans ill be available. Pee monitoing ma elp te MFI, in tat te ote gop membe ill monito te actal otcome e pee s poject ields. Tis infomation, togete it teat of social sanctions, ma be tilized to foce te pee to pa te eqied goss evene to te MFI. In a simple 5

31 Capte 3 model fom Amendaiz de Agion and Modc (005), it is eas to evalate te signification of pee monitoing. O stating point is tat te booe ill defalt on e pament if no pee monitoing is eecised. Te MFI knos tis, and no loans ill be offeed. Wit pee monitoing, te pee ma monito te actal evene at a cost k it te pobabilit p <. If te ote booe ongfll ties to claim faile, te pee ma impose te social sanction d. Te folloing ineqalit as to be satisfied to ense tat te booe ill epa e loan: R > p( d R) Solving fo R: p R < d p (6) p Te MFI ill no offe loans at a goss inteest ate less tan d p, ic is lage tan no loans at all. Te eslt depends on tat te booes cost k as to be smalle tan te epected vale of not being liable fo te pee s epament. Again, te design of te gop lending contact poves to ovecome te callenges one old face it individal contacts Handling Competition and Ote Contactal Feates As discssed in section 3..3, competition amongst micolendes ma actall make te poo booes ose off. Infomation asmmeties ma eslt in cases ee te booe epas a micoloan it anote micoloan fom anote lende, and lead te booe into a spial of debt. Moal azad ill incease in tis sitation, and te likel eslt is tat poo booes ill be eclded fom te maket. McIntos and Wdick (00) sos in tei model tat competition ma lead to an eqilibim contact tat makes evebod ose off, and most notabl te pooest of te poo.. Soltions tat alead eist in te developed old ma be te anse to tis callenge, fo instance a national cedit atoit o bea. Hoeve, tis is difficlt in less developed conties itot cetain as to establis identit. 6

32 Capte 3 Te Gameen Bank also applies dnamic incentives to fte diminis moal azad. Stating it small loans, te booe accmlates igts to lage loans if te contact is flfilled. Tee ae also les tat eglate access to cedit fom ote MFIs, to pevent te booe fom speclating in defalt. As discssed in section 3.., tis ma be seen as a penalt tat is designed to edce moal azad. I ill not model tese dnamic incentives ee, since te ae moe o less intitivel eas to ndestand. Te Gameen Bank as applied a pogessive loan sceme tat imposes a cost on stategic defalt b te booe. Tis cost as to be taken into accont even if social sanctions ae ot of te eqation, and ill ceate an incentive to epa one s loans to incease te loan size in te net stage. B tilizing tis tecniqe, te Gameen Bank bilds p a cedit isto, and te ill at an ealie stage be able to clea tei potfolio of bad clients. Te agment is valid in te same a as it te cost of social sanctions. Tis capte smmaizes te ell analzed poblems tat micofinance instittions ave sed contactal design to ok aond. Te ingenit of te adopted soltions, sc as pee monitoing and pee selection, sos tat at as once deemed a dsfnctional cedit maket no beaves moe o less like a ell fnctioning cedit maket. Tee ae still signs tat te maket fo micocedit still as to evolve; one ve inteesting callenge is te emegence of competition ove te pofitable clients and its implications fo te pooest in te MFIs s taget gop of potential clients. Tee is still need to keep in mind tat ve fe MFIs ae financiall self-sstainable, and te majoit of micolendes depend on continos fnding (Modc, 999). If sc fnding sold come to an end befoe MFIs ae self-sstainable, tis ill incease te cance of e post moal azad. Te net capte addesses te possible conseqences of te contactal feate to effectivel taget te anted gop of clients, namel omen. Tis contactal feate as been evalated in an empoement vie in seveal qalitative and econometical stdies (i.e. Goetz and Sen Gpta, 996; Scle, et al., 998 and Pitt, et al., 006), bt analtical appoaces ae moe scace. Te model pesented in section 4. seeks to descibe te inta oseold decision making, and also model te micoloan s effect on female empoement. 7