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December 2013

Does increased access to financial services promote microenterprise growth?

Miriam Bruhn's picture

Microcredit has become a buzzword over the past couple of decades and many have hoped that small loans would help microenterprises grow and raise the incomes of their owners. Recently, a number of rigorous studies have measured the effect of credit on microenterprises. The results paint a nuanced picture; with most studies showing no strong impact on microenterprise growth (see Chapter 3 of the World Bank Group’s Global Financial Development Report 2014 for a summary of these findings).

Researches have uncovered several reasons why microcredit may not lead to the expected increase in firm growth. For example, to mitigate default risk, microloans often have joint liability. However, joint liability may discourage investment because group members have to pay more if a fellow borrower makes a risky investment that goes bad, but they do not enjoy a share of the profits if the investment yields returns. Also, looking beyond microcredit, recent studies suggest that providing other financial instruments, such as savings products and microinsurance, can spur microenterprise investment and growth.

Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets

Poonam Gupta's picture

In May 2013, officials of the Federal Reserve System first began to talk of the possibility of the U.S. central bank tapering its securities purchases (of it gradually reducing them from the prevailing $85 billion monthly rate to something lower, presumably as a prelude to phasing them out entirely).  A milestone to which many observers point is May 22, 2013 when Chairman Bernanke raised the possibility of tapering in his testimony to the Congress.  This “tapering talk” had a sharp negative impact on economic and financial conditions in emerging markets.

Three aspects of that impact are noteworthy.  First, not only was the impact sharp but, in the view of many commentators, it was surprisingly large. The most alarmed (some would say alarmist) commentators raised the possibility that some emerging countries might be heading towards a full blown crisis like those in Mexico in 1994 and Asia in 1998.  Second, the impact was not felt uniformly; different countries were affected rather differently.  And, third, there were complaints from policy makers in the developing world about the Fed’s turn to tapering that were seemingly hard to square with earlier criticisms of quantitative easing by the U.S. central bank as a form of “currency war.”

Comoros’ Next Chapter – Revitalizing Growth in a Post-Conflict Environment

Stephanie Liu's picture

What does it take revitalize private sector growth in a post-conflict country?

In the Union of the Comoros, an archipelago nation off the coast of East Africa, decades of institutional instability are giving way to the re-establishment of political calm, and, in the process, setting the stage for a better business environment.

But challenges abound. Entrepreneurs and investors alike still face numerous administrative barriers to starting a business, getting credit, or even accessing investment guarantees.

The World Bank Group and a community of international partners have been working with the Comorian government and the private sector since 2010 to find ways to minimize such barriers. Since that time, a series of regulatory reforms have been introduced. Steady improvements to the investment climate were seen in this year's Doing Business report. Reforms have reduced the number of days and procedures needed to start a business among other indicators. And by recently joining the Multilateral Investment Guarantee Agency (MIGA), the Comoros has boosted its investment potential by providing political risk insurance to foreign investors.

In this video, below and online, see how these reforms and institutional collaboration are signaling the start of a new chapter for this post-conflict country.
 

Comoros' Next Chapter


 

Quote of the Week: Roger Cohen

Sina Odugbemi's picture

“The modern world’s tech-giddy control and facilitation makes us stupid.  Awareness atrophies.  Dumb gets dumber.  Lists are everywhere – the five things you need to know about so-and-so; the eight essential qualities of such-and-such; the 11 delights of somewhere or other.  We demand shortcuts, as if there are shortcuts to genuine experiences.  These lists are meaningless.”

- Roger Cohen, A Columnist of The New York Times.
 

Efforts to Protect Tropical Forests Take Big Step Forward – and Money Awaits

Ken Andrasko's picture

 

Last week in Paris, the Forest Carbon Partnership Facility’s partners and stakeholders agreed on groundbreaking rules for investments in tropical forest protection in developing nations – a framework that will also help reduce greenhouse gas emissions in our rapidly warming world.

Capping an intense five days of negotiations, this major milestone unblocks $390 million in funding held in escrow in the facility’s Carbon Fund. The agreement (formally known as a Methodological Framework) spells out how tropical countries should design and implement large-scale protection programs in the lowland and mountain forests of the tropics.

In return, the countries get results-based payments from donor countries that support climate policy and social development goals.

It’s the first time an international organization has put on paper the operational rules for purchasing so-called REDD+ credits to reduce greenhouse gas emissions. (REDD is short for Reducing Emissions from Deforestation and Forest Degradation.)

Reaching consensus on the operational roadmap for REDD+ required input from a diverse set of sometimes-contradictory viewpoints.

Seated at the table to negotiate through the many issues in Paris were donor countries, private corporations, officials from tropical countries willing to experiment with REDD+, civil society organizations and representatives from indigenous groups who were championing the rights of traditional dwellers in tropical forests.

Food for Thought

Homi Kharas's picture

Close the Gap - School Feeding Programs As we enter the holiday season, it is worth reflecting on one of the most pernicious slow-moving crises of our time: the continued presence of hunger in a world of plenty. Ending hunger by 2030 and protecting the right of everyone to have access to sufficient, safe, affordable and nutritious food is one of the targets proposed for the post-2015 agenda by the High-Level Panel on the Post-2015 Development Agenda, and many others are also promoting the same message. Pope Francis is the latest entrant into this debate with his announcement of a global campaign of prayer and action to end to hunger and malnutrition, “One Human Family, Food For All”. The campaign includes encouragement for local, national or global level action against food waste and the promotion of food access and security worldwide. The Pope prompts us all to ask ourselves, what will it take to end hunger?

The Way We Move Will Define our Future

Marc Juhel's picture

Mobility is a precondition for economic growth: mobility for access to jobs, education, health, and other services. Mobility of goods is also critical to supply world markets in our globalized economy. We could say that transport drives development.
 

Friday roundup: Inequality, Stiglitz, Chetty, frugal innovation, polio, and nudges

LTD Editors's picture

Inequality is trending as a news topic, in part due to new research by Branko Milanovic and colleagues and because Pope Francis as well as President Obama are treating it as a watershed issue. Read the piece by Howard Schneider in the Washington Post's Wonkblog for more.

Joe Stiglitz won the 2014 Daniel Patrick Moynihan Prize for his work on income inequality in the U.S. and its impact on public policy, adding to his many accolades. Read the Bloomberg coverage here.


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