Publicado en Latin American and Caribbean Economic Association - 07-10-2016
The housing credit as well as the productive credit, increase employment, investment, productivity and the long term growth rate of the economy, and under certain conditions, contributes to alleviating poverty. This is because access to credit promotes equality of opportunities, smoothes the consumption over time and allows the reallocation of resources to more efficient uses. In this sense, microfinance has proven to be an effective mechanism of poverty reduction and for promotion of social inclusion, although it has not been a sufficient condition to achieve those objectives.
As known, the lower income workers hold more precarious and unstable jobs, have no collateral, and have greater vulnerability to inflation and other conditions of macroeconomic instability. That why they may be credit rationed due to these drawbacks and to market imperfections that affect both supply and demand.
From Argentina’s perspective, comparing the recent experience with the one of other countries in the region, we find that local microfinance sector is underdeveloped and limited to microcredit. This featured is motivated by the existence of certain obstacles. Among these hurdles there are: market failures associated with asymmetric information, insufficient or lack of funding for institutions that provide microcredit, the discriminatory tax treatment to informal micro-borrowers, relatively high labor costs faced by microfinance institutions, the little or none regulation of entities operating in the sector, lack of collateral or guarantees, and high operating costs incurred by microfinance institutions (hereinafter MFI) to monitor the loans.
To our knowledge, the information about the true size of the argentine microfinance market is scant or non-existent, due to a limited knowledge of the demand among other reasons. Although previous studies attempted to provide estimates about this demand, they are outdated, have been discontinued in time or suffer from some methodological shortcomings. In this sense, a central problem of the microfinance market in Argentina is the failure of MFIs to expand and reach out their demand. And that is due precisely to the limited knowledge about the actual and particularly the potential demand they face.
In our paper, we try to fill that gap in the literature and based on household surveys[1] we estimate the determinants of the probability of prospective microcredit demand. More specifically, we quantify, characterize and enquire about the extent in which urban households socio-economic and demographic characteristics influence in people’s propensity to ask for a microcredit, either for productive purpose or housing.
We contribute to the literature on financial inclusion and microfinance in developing countries in at least three respects: First, It is the first study on the determinants of the prospective demand for microcredit in Argentina using binary econometric estimation techniques (Logit). Second, we explain the prospective behavior of such demand in contrast to the overwhelming amount of literature that focuses on past demand or a broader access to financial services, including microcredit. And third, we separate out potential demand for productive microcredit from housing microcredit, unlike previous literature. The latter is based on the vast unmet demand for housing microfinance observed in Argentina.
We arrived at the following conclusions:
• We found a total of 2.080.187 individuals earning two or less minimum wages (i.e. the potential demand) that would "request a housing loan, consumption or a productive venture in the next 12 months”. From these individuals, 10% are unemployed, 45% are informal employees and 45% are formal employees.
• The potential demand is highly concentrated: 53% of it is located in the Greater Buenos Aires area. That proportion goes up to 77 % when including the urban areas of Córdoba, Rosario and Tucuman.
• The proportion of potential applicants for microcredit with access to banking services does not exceed 40%.
• Most of the potential applicants for housing credit are already owners (57%) living in houses (86%). The use of microcredit, in perspective, we conjecture would serve to expand or renovate an existing home or building "social" housing in the best of cases.
• Through our econometric estimation, we found that the main factor determining whether the person would request a microcredit next year is the occupation (if the person is employed and the type of employment). In this sense, the hypothesis that the greater the informality of the current occupation, the greater the probability of seeking a productive microcredit was confirmed.
• The propensity to apply for a microcredit is independent of the educational level attained by the respondent of the survey and age is positively related to the probability of applying for a microcredit although decreasing mode when the life cycle progresses.
• At the same time, we note that the purpose of microcredit is essential to understand the demand. For instance, women show less marginal propensity to apply for productive microcredits than men, counterintuitive of the popular belief about "social micro-entrepreneurial woman".
• Last, the fact that the person has applied for and obtained a loan the previous year is related to the propensity to borrow next year. However, this result is consistent with the pattern of demand for housing credit, not that of demand for productive purposes.
Based on the results of this research, one final corollary will be that policies of encourage or access to microcredit must be differentiated according to kind of loan. Particularly for Argentina should contemplate the local appetite to repair, expand or finish a house in order to improve living conditions and social welfare accordingly.
[1] Based on the data gathered from Social Debt Survey of the Catholic University Argentina 2011, a stratified sample of 5.713 housing in urban areas across the country
Bibliography
Carballo, I.; Grandes, M. y Molouny, L. (2016). Determinantes de la demanda potencial de microcrédito en Argentina. Cuadernos de Administración, 29 (52), 199-228. http://dx.doi.org/10.11144/ Javeriana.cao29-52.cddp