About The William Davidson Institute
The William Davidson Institute Established at the University of Michigan in 1992, the William Davidson Institute (WDI) is an independent, non-profit research and educational organization focused on providing private-sector solutions in low- and middle-income countries. Through a unique structure that integrates research, field-based collaborations, education/training, publishing, and University of Michigan student opportunities, WDI creates long-term value for academic institutions, partner organizations, and donor agencies active in these markets. WDI works across the following initiatives - Education, Energy, Financial Sector Development, Healthcare, Performance Management and Scaling Impact. WDI also provides a forum for academics, policymakers, business leaders, and development experts to enhance their understanding of these economies. We are not theory-based. Our mission is to create true, sustainable solutions. Our work spans understanding, testing, and implementing actionable, private-sector business models which address the challenges and opportunities in low-and middle-income countries. The Financial Sector Development (FSD) Initiative identifies and implements ways for financial institutions to profitably lower the cost of capital available to SMEs in emerging economies. FSD’s current research focuses on using remittances to lower the cost of capital for SMEs by mitigating the costs associated with the moral hazard problem. Remittances – the transfer of money by a foreign worker (remitter) to people, primarily friends or family, in his or her home country — amounted to $429 billion in 2016 according to the World Bank. The use of remittance money by the recipient can be for personal consumption and/or for investments in their businesses. In this case the lender (the remitter) has knowledge about the character of the person to whom the remittance money is sent to and has the social mechanisms to influence the recipient’s behavior which is outside the reach of formal lending institutions. Thus, remittances represent not only a transfer of capital but also a transfer of information about the behavior of the recipient. By addressing the moral hazard problem, remittances can lower the cost of capital to SMEs and create a new, financially viable market for lenders. FSD engages in independent research to understand the investment interests and aspirations of diaspora for their home countries. We also work with faculty and students at the University of Michigan’s Stephen M. Ross School of Business on projects designed to develop innovative mechanisms that can lower the cost of capital. We seek to partner with institutions that are working to create innovative financial mechanisms using remittances and other private capital flows to benefit the SME sector in emerging economies.
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