International Journal of Social Economics

Nanayakkara, Gemunu ; Stewart, Jenny

2015 International Journal of Social Economics

doi: 10.1108/IJSE-10-2013-0216

Purpose – The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of utilising these funds to alleviate poverty. The purpose of this paper is to develop models to predict the repayment success of microfinancing loans. Design/methodology/approach – Analysing data relating to 1,109 random loan records from Indonesia and Sri Lanka, the study develops models to predict the repayment probability of microfinancing loans using logistic regression. Findings – There are significant differences between the two countries. In Sri Lanka, the time to approve and disburse the loan, loan cycle, gender and age of the borrower, whether a group or individual borrower, the purpose for which the loan is used and visiting frequency by the loan officers were found to be significant when predicting the repayment. Only three factors were significant in Indonesia: time to approve and disburse the loan, interest repayment frequency and gender. Both models have over 70 per cent prediction accuracy. Originality/value – The models developed can be used in the loan appraisal stage to improve the repayment performance of microfinancing institutions saving hundreds of millions of dollars in bad debt write offs.

Leathers, Charles G. ; Raines, J. Patrick ; Richardson-Bono, Heather R.

2015 International Journal of Social Economics

doi: 10.1108/IJSE-12-2013-0282

Purpose – The role of debt in episodes of financial stability is a topic of increasing important as the global economy struggles to recover from the worst crisis since the Great Depression of the 1930s. The purpose of this paper is to examine the mortgage finance booms of the 1920s and 2000s as natural experiments, new insights into debt-driven financial crises are gained. Design/methodology/approach – The general methodology is interpreting anomalous historical events as natural experiments. The specific methodology is the approach to natural experiments provided by Joseph A. Schumpeter and Milton Friedman. The hypothesis tested is that laxity in lending standards was the prime contributor to the mortgage debt booms. In each case, we explain why factors other than laxity in lending standards would be secondary factors, with the pre-boom and post-boom lending standards providing the control groups of natural experiments. The two episodes of mortgage debt booms occurring under very different general economic and financial conditions provide an especially strong test of the hypothesized functional relationship. Findings – The results of the two natural experiments support the hypothesis that lax lending standards were the prime contributors to the two episodes of debt-driven financial crisis. Originality/value – From a social economics perspective, the insights gained are important because a major social goal has been to encourage greater opportunities for home ownership. The results of these natural experiments provide guidance for policymakers in the search for a viable balance between achieving that social goal and maintaining financial stability.

Islam, Faridul ; Khan, Saleheen

2015 International Journal of Social Economics

doi: 10.1108/IJSE-12-2013-0291

Purpose – The purpose of this paper is to examine the dynamic relationship among immigration rate, GDP per capita, and and real wage rates in the USA. Design/methodology/approach – The paper implements the Johansen-Juselius (1990, 1992) cointegration technique to test for a long-run relationship; and for short-run dynamics the authors apply Granger causality tests under the vector error-correction model. Findings – The results show that the long-run causality runs from GDP per capita to immigration, not vice versa. Growing economy attracts immigrants. The authors also find that immigration flow depresses average weekly earnings of the natives in the long-run. Originality/value – The authors are not aware of any study on the USA addressing the impact of immigrants on labor market using a tripartite approach by explicitly incorporating economic growth. It is therefore important to pursue a theoretically justified empirical model in search of a relation to resolve on apparent immigration debate.

Zuhair, Segu ; Wickremasinghe, Guneratne ; Natoli, Riccardo

2015 International Journal of Social Economics

doi: 10.1108/IJSE-09-2013-0203

Purpose – The issue of migrant financial literacy remains largely unresolved despite the increasing focus on financial literacy in general. The purpose of this paper is to provide a migrant-based approach to provide a snapshot of the self-reported levels of financial literacy specifically for a group of newly arrived culturally and linguistically diverse (CALD) migrants. Design/methodology/approach – A questionnaire is employed to explore the financial literacy of selected migrant groups representing the regions of Africa, Asia and Europe. Findings – The findings reveal that: migrants are eager to seek further information to assist with their financial decision making; better access and utilisation of basic financial services seems to be an area where improvement is required; and self-reported financial literacy levels are influenced by education levels. Research limitations/implications – Although the research targets newly arrived CALD migrants, no claims can be made regarding the representation of CALD migrants as a whole. The research has implications with respect to the development of a more adequate provision of avenues for CALD migrants to utilise basic financial services. This paper provides recommendations for future research in this area. Originality/value – A migrant’s financial literacy is typically based on a “one-size-fits-all” questionnaire, which only provides a broad examination of financial literacy aspects. This study addresses this gap by undertaking a case study focused solely on newly arrived migrants.

Bhanot, Disha ; Bapat, Varadraj

2015 International Journal of Social Economics

doi: 10.1108/IJSE-01-2014-0001

Purpose – The purpose of this paper is to conceptualize the sustainability of micro finance institutions (MFIs) in a holistic manner. The idea is to create an index of sustainability for MFIs which includes financial and outreach aspects of sustainability. Further, it also discerns the factors which contribute to high (low) sustainability scores of MFIs. Design/methodology/approach – Data on Indian MFIs was collected from Microfinance Information Exchange database. Using the technique of order preference by similarity to ideal solution (TOPSIS), an Index of sustainability is built by aggregating multiple indicators (operational self-sufficiency ratio, the average loan balance per borrower and the number of active borrowers) to arrive at composite sustainability score of MFIs. Contributory factors of sustainability were identified using a multiple regression model. Findings – The sustainability score for MFIs ranges from a maximum score of 0.80 to a minimum of 0.26. Gross loan portfolio, No. of borrower per staff member, portfolio at risk>30 days and return on assets, are significant contributors to sustainability scores of Indian MFIs. Practical implications – The index of sustainability is a useful tool to rank the MFIs on a multi-dimensional construct of sustainability. The study also helps to unravel factors that significantly contribute to sustainability of Indian MFIs. Originality/value – This study is novel in its attempt to measure sustainability in a holistic fashion by focussing not just on the financial performance of the MFI but also on outreach dimensions. It is also unique in its approach to adopt a multi criteria decision-making technique of TOPSIS to measure sustainability of Indian MFIs.

Nkundabanyanga, Stephen Korutaro ; Opiso, Julius ; Balunywa, Waswa ; Nkote, Isaac Nabeeta

2015 International Journal of Social Economics

doi: 10.1108/IJSE-10-2013-0241

Purpose – The purpose of this paper is to establish the relationship between managerial competence, managerial risk-taking behaviour and financial service outreach of microfinance institutions (MFIs). Design/methodology/approach – In this cross-sectional and correlational study, the authors surveyed 52 branches of MFIs from a population of 60 branches of 20 MFIs in eastern Uganda. Two respondents, a branch manager and a senior loan officer, were the units of enquiry for each branch. The authors put forward and tested four hypotheses relating to the significance of the relationship between perceived managerial competence, risk-taking behaviour and financial service outreach using SPSS version 20. The authors established the hypothesized relationships using Pearson correlation coefficients and obtain a mediating effect of risk-taking behaviour using partial corrections and regression analysis. Findings – The results suggest positive and significant relationships between perceived managerial competence, risk-taking behaviour and financial service outreach. However, while the direct relationship between managerial competence and financial service outreach without the mediation effect of risk-taking behaviour of managers was found to be significant, its magnitude reduces when mediation of risk-taking behaviour is allowed. Thus the entire effect does not only go through managerial competence but majorly also, through risk-taking behaviour of managers. Research limitations/implications – This study did not control for environmental factors such as laws and regulations. As such the model may have been under fitted. Nevertheless, the study has introduced a clearer understanding that outreach performance in MFIs rests with competent managers in strategic positions operating in synergy with their risk-taking behaviour. The study informs policy makers that outreach performance of the MFIs depends on the quality of the competence managers have in addition to their risk-taking propensities. Practical implications – Efforts by the stakeholders to improve financial service outreach must be matched with appropriate competences and risk-taking behaviour of managers. Originality/value – The results contribute to extant literature by investigating two explanatory variables for financial service outreach and provide initial evidence of the mediating effect of intrinsic high risk-taking behaviour of managers. Results add to the conceptual improvement in risk-taking behaviour and lend considerable support for the behavioural perspective in the study of financial service outreach of MFIs.