Microfinance as a Mechanism against Financial Exclusion in the European Rural Areas – an Inspiration for the Czech Republic

Gabriela ChmelíkováAnnette KraussFrancois Lategan

DOI 10.7160/aol.2021.130406
No 4/2021, December
pp. 61-69

Chmelíková, G., Krauss, A. and Lategan, F. (2021) “Microfinance as a Mechanism against Financial Exclusion in the European Rural Areas – an Inspiration for the Czech Republic", AGRIS on-line Papers in Economics and Informatics, Vol. 13, No. 4, pp. 61-69. ISSN 1804-1930. DOI 10.7160/aol.2021.130406.

Abstract

One of the factors influencing the emergence of disparities between rural and urban regions is the varying level of financial inclusion of the population. The system of microfinancing is becoming an important mechanism against poverty and social exclusion in Europe. However, there is available very limited legal, regulatory and historical information on the microfinance system in the Czech Republic. As a result, microfinance institutions are absent and small entrepreneurs tend to use expensive consumer credit products, thereby increasing the risk of over-indebtedness. The aim of this research is to examine the repayment performance of the European microfinance institutions with increased share of clients from rural areas. Based on an empirical statistical analysis of an unique European microfinance institutions´ database, we are presenting evidence that suggests that microfinance systems perform better in rural than in urban areas. This finding is strongly recommended for consideration in the development of policies to guide legal frameworks regarding microfinancing.

Keywords

Microfinancing industry, quality of portfolio, rural economic development, social capital.

References

  1. Ahlin, C. and Townsend, R. M. (2007) “Using repayment data to test across models of joint liability lending”, The Economic Journal, Vol. 117, No. 517, pp. F11-F51. ISSN1468-0297. DOI 10.1111/j.1468-0297.2007.02014.x.
  2. Al-Azzam, M. and Mimouni, K. (2012) “What types of social ties improve repayment in group lending”, International Research Journal of Finance and Economics, Vol. 87, pp. 25-32. ISSN 1450-2887.
  3. Alina, J., McGrath, R., Faltová Leitmanová, I. and Petrách, F. (2020) “Using Constraints in Freight Volume to Identify Regional Needs for Roadway Infrastructure”, Promet-Traffic & Transportation, Vol. 32, No. 2, pp. 237-246. ISSN 2623-9299. DOI 10.7307/ptt.v32i2.3183.
  4. Bečicová, I. and Blažek, J. (2015) ”Is there a credit-gap in a periphery? The perception of this problem by small entrepreneurs”, Journal of Rural Studies, Vol. 42, pp. 11-20. ISSN 0743-0167. DOI 10.1016/j.jrurstud.2015.09.006.
  5. Biekpe, N. (2007) “Maintaining Sustainable Development in Africa through Microfinance”, Africa Growth Agenda, Vol. 2007, No. 7, p. 4-7. ISSN 1811-5187.
  6. Cassar, A., Crowley, L. and Wydick, B. (2007) ”The effect of social capital on group loan repayment: evidence from field experiments”, The Economic Journal, Vol. 117, No. 517, pp. F85–F106. ISSN 1468-0297. DOI 10.1111/j.1468-0297.2007.02016.x.
  7. Chmelíková, G., Krauss, A. and Dvouletý, O. (2020) “Performance of microfinance institutions in Europe - Does social capital matter?”, Socio-Economic Planning Sciences, Vol. 68. ISSN 0038-0121. DOI 10.1016/j.seps.2018.11.007.
  8. Cull, R., Demirgüç-Kunt, A. and Morduch, J. (2009) ”Microfinance meets the market", Journal of Economic Perspectives”, Vol. 23, No. 1, pp. 167-192. ISSN 1944-7965. DOI 10.1257/jep.23.1.167.
  9. Dow, S. C. (1992) “The regional financial sector: a Scottish case study”, Regional studies, Vol. 26, No. 7, pp. 619-631. ISSN 1360-0591. DOI 10.1080/00343409212331347261.
  10. EC (European Comission) (2018) "Finance and Support" [Online]. Available: https://ec.europa.eu/info/business-economy-euro/doing-business-eu/finance-and-support_en [Accessed: 20 August 2020].
  11. EAPN (European Anti-Poverty Network)(2016) "Social Protection". European Anti-Poverty Network [Online]. Available: http://www.eapn.eu/what-we-do/policy-areas-we-focus-on/social-protection/. [Accessed: 29 April 2020].
  12. EMN (2019) Data collected in the European Microfinance Network's Overview of the Microcredit Sector in the European Union. 2008-2009. 2010-2011, 2012-2013, 2014–2015, 2016-2017.
  13. Hatarska, V. and Nadolnyak, D. (2007) “Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence”, Applied Economics, Vol. 39, No. 10, pp. 1207-1222. ISSN 1466-4283. DOI 10.1080/00036840500461840.
  14. Hubík, S. (2007) “Operational zones, countryside, network society”, Agricultural Economics, Vol. 53, No. 11, 491 p. ISSN 0139-570X. DOI 10.17221/977-AGRICECON.
  15. Karlan, D. S. (2007) “Social connections and group banking”, The Economic Journal, Vol. 117, No. 517, pp. F52–F84. ISSN 1468-0297. DOI 10.1111/j.1468-0297.2007.02015.x.
  16. Kučerová, E. (2018) “Social inclusion in the context of Czech rural development policy”, Agricultural Economics, Vol. 64, No. 9, pp. 412-422. ISSN 0139-570X. DOI 10.17221/160/2016-AGRICECON.
  17. Lee, N. and Luca, D. (2018) “The big-city bias in access to finance: evidence from firm perceptions in almost 100 countries”, Journal of Economic Geography, Vol. 19, No. 1, pp. 199-224. ISSN 1468-2702. DOI 10.1093/jeg/lbx047.
  18. Levin, A., Lin, C. F. and Chu, C. S. J. (2002) “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of econometrics, Vol. 108, No. 1, pp. 1-24. ISSN 0304-4076. DOI 10.1016/S0304-4076(01)00098-7.
  19. Lorenzi, M. (2016) “Microcredit in the European Union: A Feasible Means for Business Growth and Fair Access to Credit”, ECPR 8th Pan-European Conference on the European Union, Trento (Italy), [Online]. Available: https://ecpr.eu/Filestore/PaperProposal/e505c1c4-bb0d-46c0-a55d-cbe5043bdbc9.pdf [Accessed: 15 June 2020].
  20. Mersland, R. and Strøm, Ø. (Eds.). (2014) ”Microfinance institutions: Financial and social performance”, Springer. ISBN 978-1-349-48588-8.
  21. Pospěch, P., Delín, M. and Spěšná, D. (2009) “Quality of life in Czech rural areas”, Agricultural Economics, Vol. 55, pp. 284-295. ISSN 0139-570X. DOI 10.17221/1489-AGRICECON.
  22. Postelnicu, L., Hermes, N. and Szafarz, A. (2014) “Defining social collateral in microfinance group lending”, In Microfinance Institutions, pp. 187-207. Palgrave Macmillan UK. London. ISBN 978-1-137-39966-3. DOI 10.1057/9781137399663_10.
  23. Stejskal, L. and Stavkova, J. (2010) “Living conditions of Czech farmers according to the EU statistics on income”, Agricultural Economics, Vol. 56, pp. 310-316. ISSN 0139-570X. DOI 10.17221/51/2010-AGRICECON.
  24. Stiglitz, J. E. (1990) “Peer monitoring and credit markets", The World Bank Economic Review”, Vol. 4, No. 3, pp. 351-366. [Online]. Available: http://documents.worldbank.org/curated/en/544771468740196425/Peer-monitoring-and-credit-markets [Accessed: 20 June 2020].
  25. Střeleček, F. and Zdeněk, R. (2014) “Incomes of rural and non-rural households in the Czech Republic”, Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Vol. 59, No. 4, pp. 319-326. ISSN 1211-8516. DOI 10.11118/actaun201159040319.
  26. Střeleček, F., Zdeněk, R., Lososová, J. and Jílek, M. (2004) “Social and economic points of the rural development”, Agricultural Economics - Czech, Vol. 50, No. 10, pp. 431-444. ISSN 0139-570X. DOI 10.17221/5230-AGRICECON.
  27. Wydick, B. (1999) “Can social cohesion be harnessed to repair market failures? Evidence from group lending in Guatemala”, The Economic Journal, Vol. 109, No. 457, pp. 463-475. ISSN 1468-0297. DOI 10.1111/1468-0297.00457.
  28. Zhao, T. and Jones-Evans, D. (2016) “SMEs, banks and the spatial differentiation of access to finance”, Journal of Economic Geography, Vol. 17, No. 4, pp. 791-824. ISSN 1468-2702. DOI 10.1093/jeg/lbw029.

Full paper

  Full paper (.pdf, 499.96 KB).