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Analysis of Impact of microfinance on rural economy<br />Amit Kumar<br />Keshav Kumar<br />Pankaj Kumar<br />ShilpaDhawan<...
2<br />“Most of the poor … are in deep trouble due to  these loans. …Poor people are committing suicides because of peer p...
The microfinance promise<br />3<br />New <br />Management<br />structures<br />New contracts<br />Innovations<br />New att...
Microfinance: what is it?<br />4<br />Often perceived as…<br />…whereas objectives are<br />
5<br />The needs of poor people are varied.. <br />Protection <br />against Health shocks <br />Lifecycle needs<br />What ...
MFIs’ interest rates in the world<br />6<br />Indian MFIs are the most efficient in the world (M-Cril)<br />
Why Microfinance can change the way the world works<br />
What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?...
Impact evaluation is different from monitoring<br />Impact evaluation and monitoring are different<br />Monitoring<br />To...
Impact.. On what? <br />10<br />On <br />community<br />On <br />household<br />Financial Services usage<br />Consumption ...
Labor supply and demand
Markets
Women empowerment
Schooling
Prices</li></li></ul><li>What do you think is the impact of microfinance on.. <br />11<br /><ul><li>Could be positive if i...
Could also be zero</li></ul>Income<br /><ul><li>Could be positive if income generating activity and if women bargaining po...
Could be zero on level, but positive on smoothing</li></ul>Consumption<br />Women <br />empowerment<br /><ul><li>Could be ...
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</li></ul>Children education <br />and health<br />
What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?...
Why is it important to measure impact? <br />Current scenario implicitly subsidizes microcredit, but it may not last witho...
Understanding impact<br />It is not only important to understand final impact, but also to understand how this happened. <...
What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?...
Imagine.. <br />In 2000, Spandana clients have a monthly income of 1000Rs in average<br />In 2001, micro-credit programme ...
Now.. Look at these facts<br />The top quarter Grameen borrowers (in terms of loan size) enjoys 15% higher consumption per...
How to evaluate impact of microfinance?<br />Compare before and after<br />Other things may be going on<br />Compare borro...
What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?...
So what to do? <br />We could compare new borrowers to old borrowers<br />Takes care of selection effect and of non random...
But.. <br />Are old and new clients the same? <br />Old clients may have been more entrepreneurial, and new clients are th...
What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?...
23<br />Research objectives<br />Assess the impact of Access to Credit on <br /><ul><li>Consumption
Business scale and profitability
Labour supply
Income
Intra Household decision Making
Asset Ownership
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  1. 1. Analysis of Impact of microfinance on rural economy<br />Amit Kumar<br />Keshav Kumar<br />Pankaj Kumar<br />ShilpaDhawan<br />
  2. 2. 2<br />“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”<br />Andra Bhoomi, 9/4/06<br />“Micro-credit has been changing people's lives and revitalizing communities”<br />UN, 2005, Year of micro-credit<br />
  3. 3. The microfinance promise<br />3<br />New <br />Management<br />structures<br />New contracts<br />Innovations<br />New attitudes<br />
  4. 4. Microfinance: what is it?<br />4<br />Often perceived as…<br />…whereas objectives are<br />
  5. 5. 5<br />The needs of poor people are varied.. <br />Protection <br />against Health shocks <br />Lifecycle needs<br />What low income clients need?<br />Protect against sudden death<br />Protection against loss of assets<br />Need to build or improve homes<br />Protection against weather shocks<br />Send money to their families when migrate<br />
  6. 6. MFIs’ interest rates in the world<br />6<br />Indian MFIs are the most efficient in the world (M-Cril)<br />
  7. 7. Why Microfinance can change the way the world works<br />
  8. 8. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />8<br />
  9. 9. Impact evaluation is different from monitoring<br />Impact evaluation and monitoring are different<br />Monitoring<br />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<br />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<br />9<br />
  10. 10. Impact.. On what? <br />10<br />On <br />community<br />On <br />household<br />Financial Services usage<br />Consumption level <br />Consumption smoothing capacity <br />Income, Business scale and profitability<br />Labor supply<br />Intra Household decision Making<br />Women empowerment<br />Asset Ownership<br />Children education<br /><ul><li>Informal lenders
  11. 11. Labor supply and demand
  12. 12. Markets
  13. 13. Women empowerment
  14. 14. Schooling
  15. 15. Prices</li></li></ul><li>What do you think is the impact of microfinance on.. <br />11<br /><ul><li>Could be positive if income generating activity
  16. 16. Could also be zero</li></ul>Income<br /><ul><li>Could be positive if income generating activity and if women bargaining power increases
  17. 17. Could be zero on level, but positive on smoothing</li></ul>Consumption<br />Women <br />empowerment<br /><ul><li>Could be positive
  18. 18. Could also be negative (violence may increase)
  19. 19. Could be positive if women have more bargaining power or if previous inability to pay fee
  20. 20. Could also be zero</li></ul>Children education <br />and health<br />
  21. 21. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />12<br />
  22. 22. Why is it important to measure impact? <br />Current scenario implicitly subsidizes microcredit, but it may not last without evidence<br />So do benefits justify substantial costs? <br />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)<br />Micro Finance is subject to political influences and reactions are very emotional; rigorous impact evaluations are essential<br />Social investors should also be interested<br />13<br />
  23. 23. Understanding impact<br />It is not only important to understand final impact, but also to understand how this happened. <br />This will help draw very useful lessons for improving programmes and designing new programmes<br />Also, it is important tot understand on whom microfinance has the most impact<br />For ex, does it have a positive impact on the poorest of the poor?<br />Some claim they should be served by other services, some that they can benefit from microfinance<br />How can programmes be designed that have an impact on them?<br />14<br />
  24. 24. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />15<br />
  25. 25. Imagine.. <br />In 2000, Spandana clients have a monthly income of 1000Rs in average<br />In 2001, micro-credit programme is introduced. <br />In 2002, the monthly income of Spandana clients is 1500Rs. in average<br />What do you conclude? <br />16<br />The before-after difference may be due to other <br />things, in addition to the programme effect<br />
  26. 26. Now.. Look at these facts<br />The top quarter Grameen borrowers (in terms of loan size) enjoys 15% higher consumption per capita than households in the bottom quarter. <br />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. <br />For daughters, the Grameen advantage is 55% versus 40%.<br />What do you conclude? <br />17<br />Borrowers and non borrowers are different before <br />the Programme: this is the SELECTION BIAS<br />
  27. 27. How to evaluate impact of microfinance?<br />Compare before and after<br />Other things may be going on<br />Compare borrowers to non-borrowers<br />Selection bias<br />Compare villages with microfinance and villages with microfinance<br />Non random placement<br />18<br />
  28. 28. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />19<br />
  29. 29. So what to do? <br />We could compare new borrowers to old borrowers<br />Takes care of selection effect and of non random placement<br />20<br />
  30. 30. But.. <br />Are old and new clients the same? <br />Old clients may have been more entrepreneurial, and new clients are the ones who imitate<br />MFI may have targeted poor people first and then everybody in the village (reverse may be true too)<br />21<br />
  31. 31. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />22<br />
  32. 32. 23<br />Research objectives<br />Assess the impact of Access to Credit on <br /><ul><li>Consumption
  33. 33. Business scale and profitability
  34. 34. Labour supply
  35. 35. Income
  36. 36. Intra Household decision Making
  37. 37. Asset Ownership
  38. 38. Financial Services usage</li></li></ul><li>Decision steps<br />Unit of randomization<br />How do we randomize? <br />Sample size<br />24<br />
  39. 39. Unit of randomization<br />We can randomize at different levels:<br />Individual level<br />Group level (school, class, mf group etc.)<br />Village or slum level<br />This depends on programme, presence of externalities etc.<br />25<br />
  40. 40. How do we randomize in practice? <br />We can randomize:<br />By phasing in the programme<br />During the pilot phase<br />By encouragement design<br />By lottery when funds are limited<br />26<br />
  41. 41. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />27<br />
  42. 42. What problems can we face on the field? <br />And what can we do about them? <br />28<br />
  43. 43. What is an impact evaluation? <br />Why impact evaluations? <br />Doing an impact evaluations is hard…<br />So what to do?<br />Impact evaluation design<br />Randomization in practice<br />Other research issues <br />29<br />
  44. 44. What works and what does not? <br />Research so far has mostly focused on:<br />Documenting the sector evolution and delivery models<br />Impact and women empowerment issues<br />Case studies of successful organizations<br /><ul><li>There is a lot of theoretical literature that shows how joint liability solves adverse selection problems</li></ul>However there is little experimental research that aims to rigorously design ways to improve existing services, for a higher impact<br />Randomization can also be used for this purpose<br />30<br />
  45. 45. Impact Study<br />1) 76.8% of the clients experienced significant reduction in their poverty over the last four years of which;<br />i. 38.4% moved from Very Poor to Moderate Poor<br /> ii. 17.6% moved from Very Poor to Not Poor<br /> iii. 20.8% moved from Moderate Poor to Not Poor<br />2) 38.4% are in the Non Poor category.<br />3) 80% witnessed increase in income levels.<br />4) Women actively participate in family decisions.<br />5) Most of the members’ children are being sent to schools.<br />6) 17 different combinations were used as paths out of poverty.<br />
  46. 46. Remove The Myths<br />The poorest are too costly to reach & motivate<br />Institutions for the poor cannot be financially self-sufficient<br />Such institutions will only add a debt burden to the poor<br />Source: The State of the Microcredit Summit Campaign Report 2003<br />
  47. 47. Growth<br />Source: The State of the Microcredit Summit Campaign Report 2003<br />
  48. 48. Sustainability<br />Notes:<br /><ul><li>Operational Self-Sufficiency (OSS) is the ability of a MFI to meet all its operational and financial costs out of its income from operations
  49. 49. 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</li></ul>Source: M-CRIL Microfinance Review 2003<br />
  50. 50. Powers of…<br />Entrepreneurship<br />Power of Ideas<br />Self preservation, Survival & Betterment<br />Appropriate Capital<br />Appropriate Assistance<br />
  51. 51. 4 Research areas to maximize micro finance impact<br />36<br />1<br />2<br />Impact and <br />product design<br />Micro finance <br /> plus<br />Maximize impact <br />On client<br />4<br />3<br />Finance and<br />Organizational<br /> issues<br />Policy<br />
  52. 52. Thank You<br />

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