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Bhokal group Bhokal group Presentation Transcript

  • Analysis of Impact of microfinance on rural economy
    Amit Kumar
    Keshav Kumar
    Pankaj Kumar
    ShilpaDhawan
  • 2
    “Most of the poor … are in deep trouble due to these loans. …Poor people are committing suicides because of peer pressure of the organizations for repayment”
    Andra Bhoomi, 9/4/06
    “Micro-credit has been changing people's lives and revitalizing communities”
    UN, 2005, Year of micro-credit
  • The microfinance promise
    3
    New
    Management
    structures
    New contracts
    Innovations
    New attitudes
  • Microfinance: what is it?
    4
    Often perceived as…
    …whereas objectives are
  • 5
    The needs of poor people are varied..
    Protection
    against Health shocks
    Lifecycle needs
    What low income clients need?
    Protect against sudden death
    Protection against loss of assets
    Need to build or improve homes
    Protection against weather shocks
    Send money to their families when migrate
  • MFIs’ interest rates in the world
    6
    Indian MFIs are the most efficient in the world (M-Cril)
  • Why Microfinance can change the way the world works
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    8
  • Impact evaluation is different from monitoring
    Impact evaluation and monitoring are different
    Monitoring
    To monitor the development of the program as a whole, and of its component projects, in relation to changes in the context and circumstances of their implementation
    To monitor the development of the program as a whole, and of its component projects, in regard to goals, timelines, and any unforeseen circumstances that may occur
    9
  • Impact.. On what?
    10
    On
    community
    On
    household
    Financial Services usage
    Consumption level
    Consumption smoothing capacity
    Income, Business scale and profitability
    Labor supply
    Intra Household decision Making
    Women empowerment
    Asset Ownership
    Children education
    • Informal lenders
    • Labor supply and demand
    • Markets
    • Women empowerment
    • Schooling
    • Prices
  • What do you think is the impact of microfinance on..
    11
    • Could be positive if income generating activity
    • Could also be zero
    Income
    • Could be positive if income generating activity and if women bargaining power increases
    • Could be zero on level, but positive on smoothing
    Consumption
    Women
    empowerment
    • Could be positive
    • Could also be negative (violence may increase)
    • Could be positive if women have more bargaining power or if previous inability to pay fee
    • Could also be zero
    Children education
    and health
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    12
  • Why is it important to measure impact?
    Current scenario implicitly subsidizes microcredit, but it may not last without evidence
    So do benefits justify substantial costs?
    Even if clients repay and continue to come, microcredit may not be beneficial to them (they may not be rational when they make the decision to borrow)
    Micro Finance is subject to political influences and reactions are very emotional; rigorous impact evaluations are essential
    Social investors should also be interested
    13
  • Understanding impact
    It is not only important to understand final impact, but also to understand how this happened.
    This will help draw very useful lessons for improving programmes and designing new programmes
    Also, it is important tot understand on whom microfinance has the most impact
    For ex, does it have a positive impact on the poorest of the poor?
    Some claim they should be served by other services, some that they can benefit from microfinance
    How can programmes be designed that have an impact on them?
    14
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    15
  • Imagine..
    In 2000, Spandana clients have a monthly income of 1000Rs in average
    In 2001, micro-credit programme is introduced.
    In 2002, the monthly income of Spandana clients is 1500Rs. in average
    What do you conclude?
    16
    The before-after difference may be due to other
    things, in addition to the programme effect
  • Now.. Look at these facts
    The top quarter Grameen borrowers (in terms of loan size) enjoys 15% higher consumption per capita than households in the bottom quarter.
    62% of the school-age sons of Grameen Bank borrowers are enrolled in school versus 34% of the sons of eligible households that do not borrow.
    For daughters, the Grameen advantage is 55% versus 40%.
    What do you conclude?
    17
    Borrowers and non borrowers are different before
    the Programme: this is the SELECTION BIAS
  • How to evaluate impact of microfinance?
    Compare before and after
    Other things may be going on
    Compare borrowers to non-borrowers
    Selection bias
    Compare villages with microfinance and villages with microfinance
    Non random placement
    18
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    19
  • So what to do?
    We could compare new borrowers to old borrowers
    Takes care of selection effect and of non random placement
    20
  • But..
    Are old and new clients the same?
    Old clients may have been more entrepreneurial, and new clients are the ones who imitate
    MFI may have targeted poor people first and then everybody in the village (reverse may be true too)
    21
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    22
  • 23
    Research objectives
    Assess the impact of Access to Credit on
    • Consumption
    • Business scale and profitability
    • Labour supply
    • Income
    • Intra Household decision Making
    • Asset Ownership
    • Financial Services usage
  • Decision steps
    Unit of randomization
    How do we randomize?
    Sample size
    24
  • Unit of randomization
    We can randomize at different levels:
    Individual level
    Group level (school, class, mf group etc.)
    Village or slum level
    This depends on programme, presence of externalities etc.
    25
  • How do we randomize in practice?
    We can randomize:
    By phasing in the programme
    During the pilot phase
    By encouragement design
    By lottery when funds are limited
    26
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    27
  • What problems can we face on the field?
    And what can we do about them?
    28
  • What is an impact evaluation?
    Why impact evaluations?
    Doing an impact evaluations is hard…
    So what to do?
    Impact evaluation design
    Randomization in practice
    Other research issues
    29
  • What works and what does not?
    Research so far has mostly focused on:
    Documenting the sector evolution and delivery models
    Impact and women empowerment issues
    Case studies of successful organizations
    • There is a lot of theoretical literature that shows how joint liability solves adverse selection problems
    However there is little experimental research that aims to rigorously design ways to improve existing services, for a higher impact
    Randomization can also be used for this purpose
    30
  • Impact Study
    1) 76.8% of the clients experienced significant reduction in their poverty over the last four years of which;
    i. 38.4% moved from Very Poor to Moderate Poor
    ii. 17.6% moved from Very Poor to Not Poor
    iii. 20.8% moved from Moderate Poor to Not Poor
    2) 38.4% are in the Non Poor category.
    3) 80% witnessed increase in income levels.
    4) Women actively participate in family decisions.
    5) Most of the members’ children are being sent to schools.
    6) 17 different combinations were used as paths out of poverty.
  • Remove The Myths
    The poorest are too costly to reach & motivate
    Institutions for the poor cannot be financially self-sufficient
    Such institutions will only add a debt burden to the poor
    Source: The State of the Microcredit Summit Campaign Report 2003
  • Growth
    Source: The State of the Microcredit Summit Campaign Report 2003
  • Sustainability
    Notes:
    • Operational Self-Sufficiency (OSS) is the ability of a MFI to meet all its operational and financial costs out of its income from operations
    • Financial Self-Sufficiency (FSS) measures the extent to which its income from operations covers operating costs after adjusting for all forms of subsidy and the impact of inflation
    Source: M-CRIL Microfinance Review 2003
  • Powers of…
    Entrepreneurship
    Power of Ideas
    Self preservation, Survival & Betterment
    Appropriate Capital
    Appropriate Assistance
  • 4 Research areas to maximize micro finance impact
    36
    1
    2
    Impact and
    product design
    Micro finance
    plus
    Maximize impact
    On client
    4
    3
    Finance and
    Organizational
    issues
    Policy
  • Thank You