Declining Benefits to Membership in Micro Finance Programs - Theory and Empirical Evidence

Nidhiya Menon ()

Development and Comp Systems from EconWPA

Abstract: This paper studies the benefits of participation in micro finance programs, and shows that although membership in these programs is an effective instrument in combating inter-seasonal consumption differences, there is a threshold level of length of participation beyond which benefits begin to diminish. Returns from membership are modeled using an Euler equation approach. Fixed effects non-linear least squares estimation of parameters using data from twenty four villages of the Grameen Bank suggests that that maximum effect of participation occurs after three and a half to four years of membership. These estimates suggest that after seven to eight years of participation, membership no longer has a mitigating marginal effect on seasonal shocks to per capita consumption. Such non-linearities may underlie anecdotal evidence indicating that as compared to those who have recently joined, experienced participants are more likely to miss installment payments on outstanding loans.

Keywords: Micro finance; diminishing returns; consumption smoothing (search for similar items in EconPapers)
JEL-codes: D12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-mfd and nep-mic
Date: 2004-03-22
Note: Type of Document - pdf; pages: 25. 25 pages, pdf document.

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http://129.3.20.41/eps/dev/papers/0403/0403006.pdf (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpdc:0403006

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