Escaping From the Poverty Trap With Social Innovation: A Social Microcredit Programme in Hungary

Molnár, György; Havas, Attila

doi:10.2139/ssrn.3390420

Cited by 2 publications

(3 citation statements)

References 32 publications

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“…We conclude that microfinance has a positive economic impact in Hungary. Some studies arrive at the same considerations (Molnár and Havas, 2019). Indeed, some economic indicators show significant improvements in the Hungarian labour market.…”

Section: Possible Alternatives To Microcreditmentioning

confidence: 76%

Contextualizing Microcredit in Bosnia-Herzegovina and Hungary: A Focus Group Exploration

Federico¹,

Calzolari²,

Notte³

et al. 2022

American Journal of Economics and Business Administration

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Microfinance is gaining importance as a tool to reduce poverty and promote financial and social inclusion. The main goal of the paper is to analyze the role of microcredit to solve the problem of the credit access to vulnerable people. The paper focuses on the direct experience of people who have used microcredit living in Bosnia-Herzegovina and Hungary to analyze the use of microcredit in these areas. From the methodological point of view, the research uses focus groups to investigate on customer relations with the banking system, microcredit, social and financial exclusion, and possible alternatives to microcredit. In this way, it is possible to analyze mechanisms through which the involvement in microcredit operations results in positive (and negative) effects on people's lives. Results show that microcredit is a great opportunity to facilitate employment, create jobs, increase productivity, improve living conditions promote social integration. Results show that services of mentoring and coaching improve entrepreneurship skills or vocational (technical) know-how. These services help to improve access to finance for vulnerable individuals and to support better living conditions. We identify current good practices among microfinance services to understand the future potential role of microcredit propose concrete in particular areas.

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Section: Possible Alternatives To Microcreditmentioning

confidence: 76%

Contextualizing Microcredit in Bosnia-Herzegovina and Hungary: A Focus Group Exploration

Federico¹,

Calzolari²,

Notte³

et al. 2022

American Journal of Economics and Business Administration

View full text Add to dashboard Cite

show abstract

“…At the same time, their experiment also shows if the debt reaches a high level, concentrated debt is more demotivating. Molnár and Havas (2019) analyzed the lessons learnt from the Grameen model-based Hungarian policy (Kiútprogram) to help the most disadvantaged Roma households to escape poverty. They highlighted that the micro-loan as a policy tool on its own is not sufficient and its effect can even turn out as detrimental.…”

Section: Poverty Trapmentioning

confidence: 99%

“…I recommend looking at regulatory solutions and their effectiveness in the European Union. One example is Walter and Krenchel (2021), who examined and compared the regulatory solutions for personal bankruptcy in the European Union or Molnár and Havas (2019) who shares the experience of the Hungarian social microfinancing program.…”

Section: Policy Implications and Further Researchmentioning

confidence: 99%

Overdue Debt as a Poverty Trap

Dobránszky-Bartus¹

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In our research, we aim to shed light on the role of overdue debt in reinforcing poverty. This not only helps to better understand the dynamics of poverty trap induced by overdue debt but also enhances the rediscussing of current policy tools. Our research is based on data collected with targeted questionnaires in March and April 2019 by the Soreco Research Kft. Data were recorded with a personal question and answer method, by a so-called multi-stage stratified random sampling procedure. The data collection was anonymised and focused on the financial and liquidity decisions of households in small settlements in one of the most disadvantaged counties of Hungary, Borsod-Abaúj-Zemplén (BAZ) county. The sample is representative on the level of households living in small settlements. After cleaning the raw data, we have information from 504 households and 1794 individuals. 1196 individuals are of legal age, from whom 179 had overdue debt. We develop a theoretical model inspired by Akerlof (1978), Tirole (2006), and Mukherjee, Subramanian, Tantri (2019) to derive a feasibility condition for market-based debt relief programs. Our empirical analysis aims at investigating the role of overdue debt in creating poverty trap. With the help of statistical analysis and linear probability models we examine the impact of overdue debt on employment, on having a bank account, and on mental- and physical- health based on targeted questionnaires and in-depth interviews in the most disadvantaged regions of Hungary. We controlled for socioeconomic factors (e.g., gender, age, education level, ability to pay) and for settlement and county development indicators. In these regions, a significant part of the society has been the victim of financial exclusion well before the Covid 19 crisis, even under prospering economic conditions. Results: § The theoretical model shows that lenders have no interest to offer payment reductions if non-performing borrowers are few, have small debts, and are difficult to reach. In this situation, poor debtors serve better as deterrents, similarly if we put them into a pillory. § Calibrating model parameters to poor households struggling with overdue debts, we show that this might be the case on our sample, too. § As, in normal economic circumstances, private debt relief programs are typically not feasible, a state subsidy would be needed to consolidate the debts of the poor. State intervention can be justified both by positive externalities and moral considerations. § We find that many borrowers hide from debt collection as a consequence of overdue debt that has escalated to an unbearable level due to penalty rates. These borrowers are following the hiding strategy and take their decisions accordingly: to avoid deductions, they do not apply for registered jobs, do not open bank accounts and consequently, they are forced to live under constant stress. § To sum up the impact of overdue debt on social inclusion factors and according to our estimations, overdue debts reduce the likelihood of having a registered job by nearly 14 percentage points. Not having a registered job reduces the probability of owning a bank account by 22 percentage points and, in addition, overdue debts further decrease the probability by 5 percentage points. In addition, overdue debt also has a negative effect on the health of those living in the same household as the debtor, and this negative effect is greater than what a combined high school diploma and diploma could compensate for (0.4 versus 1.08-0.72 = 0.36). § Overdue debt, therefore, leads to a certain type of debt-trap mechanism resulting in significant loss for both the individual and the society. In this light, policy makers should pay more attention to addressing credit cycles and resolving non-performing debt obligations, especially in this fragile part of the society.

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Escaping From the Poverty Trap With Social Innovation: A Social Microcredit Programme in Hungary

Cited by 2 publications

References 32 publications

Contextualizing Microcredit in Bosnia-Herzegovina and Hungary: A Focus Group Exploration

Contextualizing Microcredit in Bosnia-Herzegovina and Hungary: A Focus Group Exploration

Overdue Debt as a Poverty Trap

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