June 21, 2012 on: Economical

Mongolia’s economy grew 17.3 percent last year thanks to a mining boom, and the government is set to distribute to the public some $1 billion to share the wealth.

Against this backdrop, the European Bank for Reconstruction and Development (EBRD) launched a project in 40 Mongolian villages from 2008-2009 to assess the impact of business startup microcredit lending. Does it reduce poverty? And which loan structure is best? The second question is key because the microfinance industry is in transition, shifting from the group loans pioneered by Grameen Bank to individual lending. In a group loan, the borrowers are liable for each other’s payments, meaning that everyone goes into default if one member doesn’t repay. This, naturally, can be very problematic. But there are scant data on the relative impact of the two models regarding business creation, poverty reduction, etc., the bank notes. So, in cooperation with Mongolia’s XacBank, it offered group loans to women in 15 villages and individual loans to women in another 15 villages. Ten villages formed the control group. Some highlights from the findings, released last month:
  • The results at least partially support the growing body of evidence that microfinance doesn’t make much of a dent in poverty, as incomes remained static in both loan groups. It might just be too early to observe significant change, the bank notes. But more and more research suggests that micro-finance is no poverty slayer, contrary to early optimism.
  • As regards business creation and household well being (measured by food consumption), the group loans were more effective. Women in that program were 29 percent more likely than the control to operate a business. They also put more food, including fresh produce, on the table. For individual loan recipients, no impact was observed.
  • Much of the lending didn’t go towards small business creation. In fact, half of the money went to consumer items. By survey’s end, the households in both loan programs were much more likely to own a VCR or radio than those in the control.
Conclusions? The bank posits that group loans had more impact because borrowers in a collective are less prone to risky investments or “paying it forward,” so to speak, by lending on to family and friends. On poverty reduction, the EBRD notes that less-educated women in both groups seemed to benefit more, which is promising because education is “a proxy for long-term poverty.” But, to its credit, the bank acknowledges the ambiguities and points to research that generally challenges the poverty cure thesis. We’ll get another look at this question later this summer, when the EBRD publishes research on the impact of microcredit during the financial crisis in Bosnia and Herzegovina.

SOURCE OF THIS ARTICLE : east of center

Please note that this article and / or its accompanying media (picture, video, sound files etc…) has not been written, created or taken by M.A.D. Investment Solutions staff. It is not copyrighted to M.A.D. Investment Solutions nor does the company claim any ownership or rights towards the content and its accompanying media. The above article does not in any case represent the views or opinions of M.A.D. Investment Solutions or any of its affiliate individuals or companies. The article above is purely meant as a source of information to readers and does not constitute a legal or biding agreement in any way, shape or form. Ownership of the content and its accompanying media remains with its legal owner or contributor but was sourced from Public Domain sources. If you are the owner of this content or its media and would like it replaced or taken out of our website, please contact us on: info@mad-mongolia.com. For contact and comments directly relating to the above article and or its accompanying media, please refer to the source as stated above.

Did you enjoy this article? Please consider sharing it!

Real Estate Mongolia

M.A.D Investment Solutions Office

Sukhbaatar District, 4th Khoroo
Building no 67, Unit 1&2.
Ulaanbaatar, Mongolia

Tel: +976 11 312 500 (Office)
Tel: +976 95 853 377 (English)
Tel: +976 99 770 439 (Mongolian)
Email : info@mad-mongolia.com

Website design and contents copyright @ M.A.D. Investment Solutions 2009 - 2012 - All rights reserved. Disclaimer