MIRG Meeting 5: Impact of Microfinance Aruna Ranganathan
MIRG Meeting 5:Impact of Microfinance
Aruna Ranganathan
Agenda
• Impact on poverty• Impact on gender• Impact on society• Any harmful effects?• Methodology Issues• Overall impact• Larger question: Is bottom-up development
worth it? Are we doing it for us or for them?
Study-The miracle of microfinance? Evidence from a randomized
evaluation (Banerjee et al 2009)• 104 slum neighbourhoods in Hyderabad• Partner: Spandana• Random assignment to open a branch (only difference
between treatment and control is access to microcredit)
• Time frame: 15-18 months• Data source: Household survey in 65 households in
each slum (total:6,850 households)• Goal:study effects of creation and profitability of small
businesses, investment & consumption
Household Selection
• No pre-existing microfinance presence
• Poor but not “poorest of the poor”
• Low density of construction workers
• Concrete houses, public amenities
• Not largest slums
• Population per chosen slum:46-555
Data Collection
Baseline survey - 2005• Household composition, education,
employment, assets, decision-making, expenditure, borrowing/saving, business
• 2,800 households (non-random)Created matched pairs for random
assignmentEndline survey- 2007/2008
Typical Household..• Family of 5• Monthly expenditure: Rs.5000• 70% lived in own house• ~85% of children were in school• 69% had one non-MFI loan (average: Rs.20,000)• 31% ran one small business (average profits:
Rs.3040)• 34% had a savings account• 26% had life insurance• None had health insurance
Spandana
• Eligibility: (a) female, (b)18-59, ©residing in same area for past 1 year, (d) valid id and proof of residence, (e)80% of women in group should own home
• Group: 6-10 women• Center: 25-45 groups• Women jointly responsible for group & center• No selection based on use of money• No business training, financial literacy etc.• Loan: Rs.10,000, 50 weeks, 12%• Loan can increase up to Rs.20,000 with time
Methodology IssuesGenerally..• Microfinance clients are self-selected• Microfinance organizations choose some villages and not
others • Cause-effect hard to isolateSpecifically in this paper..• Financial gains for borrower measured by income &
spending• Too short timeframe?• Other MFIs started operations in both the treatment and
control groups during time frame but Banerjee et al(2009) claim that probability of receiving loan still 44% higher in treatment
Impact on Poverty• Borrowers who already had a business increased
durable expenditure and realized increase in profits• Households without businesses (high propensity to
become business owners) saw cut back in spending (to save for durable asset?)
• Households without businesses (low propensity to become business owners) increased non-durable spending
• Overall population: household spending stayed same “average monthly expenditure per capita”
• Households in treated areas 1.7% points more likely to report operating a business opened in the past year
• Business owners in treatment areas report more monthly business profits- average of Rs.4,800
• Averaged over old business owners, new entrepreneurs and non-entrepreneurs, there is no significant difference in total household expenditure between treatment & comparison (Rs.1453 vs. Rs.1420)
• Composition of spending changed slightly: treatment spent more on durable and less on temptation
Data on comparison households who do not own an old business:
• The following predict the decision to become an entrepreneur: whether wife of household head is literature, whether wife works for wage (-), # prime aged women, amount of land owned
• All 3 groups take out MFI loans at similar rates• Households who have old business increase rate
of MFI borrowing by 8.5%• New biz propensity does not increase borrowing
Interpretation
Those with higher business propensity start more businesses
• Households with old business increase durable spending
• Households with no old business and lowest propensity to start a business increase non-durable spending
• Households with no old business and lowest propensity increase spending on temptation
• However, new entrepreneurs decrease spending on temptation
What is money spent on?
• Household expenses
• Paying off debts
• Firing unproductive workers
• Luxury goods: TV, fancy weddings
Impact on Gender
• No impact
• Benefactors of microfinance: male entrepreneurs with existing businesses
• Women’s decision making power within household stayed same
Impact on Society
• Sometimes less money spent on temptation goods (alcohol, tobacco, gambling)
• No effect on children’s heath
• No effect on children’s education levels
Any harmful effects?
Skeptics suggest:
• microfinance displaces other anti-poverty measures
• Contributes to over-borrowing
• Increases long term poverty
Overall Impact
• No significant gains for borrowers (based on chosen indicators)
• Cheaper alternative to moneylender
• Thus encourages saving
Larger Questions:Is bottom up development worth it? Are we
doing it for us or for them?
• Microfinance initiatives pay for themselves- even return a profit
• Microfinance will not transform lives• But India already has many petty jobs- what we
need are stable jobs at large enterprises with reliable income
• No economies of scale in this: anti-poverty initiatives need to be broader in scope
• Focus more on medium sized businesses