This introductory chapter provides an overview of what global value chains (GVCs) are, and why they are important. It presents a genealogy of the emergence of GVCs as a concept and analytical framework, and some reflections on more recent developments in this field. Finally, it describes the chapter organization of this Handbook along its five cross-cutting themes: mapping, measuring and analysing GVCs; governance, power and inequality; the multiple dimensions of upgrading and downgrading; how innovation, strategy and learning can shape governance and upgrading; and GVCs, development and public policy.
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Stefano Ponte, Gary Gereffi and Gale Raj-Reichert
Isabelle Guérin, Solène Morvant-Roux and Jean-Michel Servet
Microfinance, both as a field of action and research, has been through major changes over the past decade. This field of action is now part of the broader financial inclusion agenda, and digital finance is taking on an increasingly important position. New technologies are continuing to expand the current and potential frontiers of ‘financial inclusion’. In terms of research, some innovative (though disputable) methods have emerged, with varying scopes and objectives. Both are quantitative: financial diaries and randomized control trials (RCTs). These methods have resulted in some progress (financial diaries in particular). But they tend to considerably narrow down the unit of analysis (especially RCTs, which are closely linked to behaviourism) while crowding out other methods and approaches (Bedecarrats et al. 2017). The main purpose of this chapter is to argue that to design suitable, fair financial services, we must take social interdependencies into account. By this, we mean that humans are first and foremost social beings constantly looking to forge relations with others. We also mean that social and economic changes are not the aggregate of individual actions but of multiple interactions and systemic effects.
Jonathan Morduch and Timothy Ogden
The rhetoric of social investment is grand and clear, and the basic vision is simple: to support a new sort of capitalist endeavor driven by pursuit of social progress rather than just pursuit of profit. Yet the reality can be messy. How could it not be? Modern history has been shaped by the tensions between unbridled capitalism and struggles for social and economic justice. So it is not surprising that in the same 12 months that publishers release hope-filled books on social investment like A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment and Zero Net Carbon Emissions (Yunus 2017), other publishers release bubblebursting exposes like Winners Take All: The Elite Charade of Changing the World (Giridharadas 2018). Against the backdrop of these tensions, the world of social investment somehow embraces both market denialism and market fundamentalism. It depends on large subsidies while deploying anti-subsidy rhetoric. Definitions and practice have become so squishy that the coiner of one of the seminal terms of social investment, the “triple-bottom line”, recently suggested “recalling” the term because it is now essentially meaningless (Elkington 2018).
Valentina Hartarska and Denis Nadolnyak
This chapter’s objective is to introduce the reader to the main aspects of productivity and efficiency analysis of microfinance institutions (MFIs) and to identify the agenda for future research. We start with a few basic definitions. Productivity and efficiency analyses fall within the broader field of performance evaluation of MFIs. Productivity analysis and the related widely used productivity measures are concerned with the rate of output for a certain amount of input. More formal modeling of the production process in microfinance defines efficient production as the result of profit maximization or of the dual cost minimization subject to technological and resource constraints. Thus, such analysis aims to identify the maximum output(s) that can be produced from a given set of inputs or the minimum input mix used to produce a given level of output. Efficiency analysis extends productivity analysis by constructing an efficient production or cost frontier for a group of firms or an industry against which individual MFIs can be compared using either data envelopment (DEA) or stochastic frontier (SFA) analysis.1 We start by describing the two main approaches to productivity and efficiency analysis of MFIs, the non-structural and structural approaches.
In 2012, Demirguc-Kunt and Klapper posited that effective and inclusive financial systems are likely to benefit poor people and other disadvantaged groups because without inclusive financial systems, poor people must rely on their own limited savings to invest in their education or become entrepreneurs – and small enterprises must rely on their limited earnings to pursue promising growth opportunities. This can contribute to persistent income inequality and slower economic growth. (2012, p. 1) Twenty years earlier, McKinnon the “financial liberalization” school, claimed that the development of the financial system is at the heart of the economic development process.
Roy Mersland, Stephen Zamore, Kwame Ohene Djan and Tigist Woldetsadik Sommeno
Over the past four decades, microfinance has grown from small local initiatives into a global phenomenon practiced in many markets, mostly in low-income economies but also in well-developed markets like the US and the EU. Interestingly, microfinance institutions (MFIs), that is, providers of financial services to end customers, often have several cross-border stakeholders, including shareholders, donors, lenders, and providers of technical assistance and advanced IT systems. Moreover, important “think tanks” like the CGAP provide the industry with global policy guidelines. Thus, microfinance is a very international industry and empirical evidence shows that international stakeholders as well as policymakers influence the performance of MFIs (Mersland et al., 2011; Mersland and Urgeghe, 2013). The purpose of this chapter is therefore to give an overview of the internationalization of the industry and to suggest relevant theories when studying cross-border microfinance partnerships. Moreover, we present initial statistical evidence of how internationalization can influence MFIs’ performance and the type of services they offer. Based on our initial results, we suggest a research agenda for future studies.
Islamic finance can be defined as finance that conforms to Islamic law (Sharia) derived from the Qur’an and other sources. It has considerably expanded over the last two decades, with Islamic financial assets increasing from $150 billion in the mid-90s to $1880 billion at the end of 2015 (Islamic Financial Services, 2016). Islamic finance is particularly prominent in Southeast Asia, South Asia, and in Middle Eastern countries. According to Obaidullah and Khan (2008, p.6) in a report for the Islamic Development Bank, “microfinance and Islamic finance have much in common . . .. Both focus on developmental and social goals. Both advocate financial inclusion . . .. Both involve participation by the poor.” It therefore appears natural that Islamic microfinance has emerged to supply microfinance tools which are Shariacompliant. Our objective in this chapter is to describe and to discuss Islamic microfinance. We aim at explaining how Islamic microfinance works nowadays in the world. To this end, we explain what characterizes Islamic finance and present the differences between Islamic microfinance and conventional microfinance. Literature on Islamic microfinance is still very limited, which limits the current knowledge we have on the effects of Islamic microfinance.
Marek Hudon, Marc Labie and Ariane Szafarz
For a long time, scholars and practitioners have questioned the link between economic development and the financial sector. Undeniably, there is a deep connection there, but causalities are hard to capture, and are therefore controversial. Arguably, causal links exist in both ways depending on the precise variables considered. Whether the development of the financial sector follows economic development, or the reverse, is a key issue when it comes to drafting policy recommendations for development aid. This book focusses on the segment of the financial sector that affects the situation of the unbanked and marginalized people. By bringing together original and multidisciplinary contributions from world-renowned scholars in the field, it has the ambition of providing the readers with an up-to-date state of the art on key issues of research in microfinance and financial inclusion. In line with the editorial policy of the series, each chapter also opens avenues worth exploring in future academic work. This introductory chapter explains how the issues addressed in this volume emerged from the field. Next, we describe the plan of the monograph and briefly evoke a few promising topics left aside to fulfill space constraints. Contemporary microfinance appeared in the 1970s, when it appeared that injecting capital through development banks was not the universal cure for poverty (Hulme and Mosley, 1996). At the same time, the ideological context was favorable. The 1980s have witnessed a strong political push in favor of deregulating markets, stimulating private enterprises, and favoring as much competition as possible (Weber, 2004). This was fertile ground for the development of microfinance institutions. First, microfinance carried the great hope that subsidies would make it possible to design organizations financing excluded people and turn them into microentrepreneurs. Their private businesses would generate additional incomes, leading to significantly improving their livelihoods. In a nutshell, poverty understood as a lack of income could be solved by microcredit, which allowed the poor to work their own way out of poverty. Second, microfinance was built on a promise that microfinance institutions (MFIs, as they got called) would break even after a few years and provide financial inclusion to more and more people (Morduch, 1999a). The accuracy of this past prediction is still open to discussion. While, undeniably, microfinance has undergone a tremendous development during the last three decades, leading to more financial inclusion than ever, several original assumptions were severely confronted with reality. First, microcredit does not necessarily generate income through entrepreneurial activities since part of it is used for consumer loans. Second, the initial target pool of borrowers, made up of the poorest of the poor, is hard to reach. Last, the objective of smoothing the impact of economic shocks appeared to be more limited than expected.
The term governance refers to how the rights, claims and obligations are divided among the stakeholders of an organization. Governance deals with the rules and regulations shaping ownership, management and its monitoring. The governance of an organization consists of a set of internal as well as external mechanisms that are in place to make sure that the interests of its stakeholders (shareholders, banks, employees, government, and society as a whole) are taken care of by management. Since the corporate scandals of the early 2000s, governance has received a lot of attention, both from academia as well as from policy makers. Governance is also important for microfinance. According to the Centre for the Study of Financial Innovation (CSFI), governance is one of the main concerns microfinance institutions (MFIs) have to deal with, especially in the last couple of years. In particular, the reports stress concerns related to the low quality of management and lack of professionalism, cronyism, and lack of transparency and disclosure.