+

The Miracle of Microfinance? Evidence from a Randomized EvaluationEsther Duflo, Abhijit Banerjee, Rachel Glennerster, and Cynthia G. Kinnan, NBER Working Paper No. 18950, 2013 Presentation by Savanah Landerholm

+

About the Authors

Esther Duflo

Abhijit Banerjee

Rachel GlennersterCynthia G.

Kinnan

+Introduction

Microfinance or microcredit is: “a type of banking service that is provided to unemployed

or low-income individuals or groups who would otherwise have no other means of gaining financial services.”

Microfinance institution (MFIs) have expanded rapidly over last 10-15 years 7.6 million families in 1997 137.5 million families in 2010

Originally viewed as a win-win opportunity, but recent backlash

+Literature Review

Little to no hard evidence that it works or does not work

There were no studies that had measured the longer-term effects of microcredit.

While this study was underway, three other studies were too.

Results were compared at the end.

+Methodology Overview

First randomized evaluation of the effect of the canonical group-lending microcredit model, which targets women

Studies households over 3.5 years after the introduction of the system—the longest period of any study

In 2005, 52 of 104 poor neighborhoods in Hyderabad, India, were randomly selected for opening of an MFI branch

First endline survey was 15-18 months after introduction of microfinance in each neighborhood

Second survey was two years later

+Methodology Specifics

Examined: Effect consumption New business creation Business income

As well as human development outcomes: Education Health Women’s empowerment

Sample size 6,864 households 90% maintained contact throughout the 3.5 year study

+

FindingsAt First Endline Survey

NO DIFFERENCE in monthly per capita consumption and monthly non-durable consumption

Significant POSITIVE IMPACTS of the purchase of durables—households reduced spending on what they described as “temptation goods”

INCREASE in the number of new businesses created, particularly by women However, these businesses are

smaller and less profitable than the average business in the area (the vast majority which are already small and unprofitable)

No significant growth

+

FindingsAt Second Endline Survey

HELPS households make different intertemporal choices in consumption With access to microcredit,

families may sacrifice short- or even medium-term consumption in order to get the durable good, or to invest in a business

NO SIGNIFICANT DIFFERENCE in total household expenditures

Almost 70% of eligible households do not have an MFI loan—preferring to borrow from other sources, if they borrow (and most do)

INSIGNIFICANT increase in business profits

+

FindingsOn Human Development Outcomes

NO EFFECTS on human development or women’s empowerment after 18 or 36 months

NO EFFECT on health outcomes

NO CHANGE in the probability that children/teenagers are enrolled in school

NO EFFECT on the index of social outcomes (out of 16 social outcomes)

NO PRIMA FACIA EVIDENCE that it leads to important changes in household decision-making or in social outcomes

+Result Comparison

Insignificant impact on monthly consumption and non-durable consumption

Decline in temptation goods, spending on parties, or both

Expansion in self-employment activities

In all but one, this activity did not translate into significantly higher profits or increase in profits of median business

Impact is very small and insignificant at the median, however, it can help increase profits in 90th—95th percentile

This study finds an increase in the purchase of durable goods used at home in last year

On Women’s Empowerment 2 show no impact 2 do not report it 1 finds increase in women’s

decision-making On Education

2 show no impact 1 shows small positive

impact 1 finds a negative impact

On Health 1 shows less expenditures 1 shows more expenditures

Are Social Impacts more influenced by the context?

Consistencies Differences

+Conclusion

“Microcredit is not for every household, or even most households, and it does not lead to the miraculous social transformation some proponents have claimed.”

“Its principal impact seems to allow some households to sacrifice some instantaneous utility to finance lumpy purchases, either for their home or to establish or expand a business.”

“The only mistake that the microcredit enthusiasts may have made is to overestimate the potential of businesses for the poor, both as a source of revenue and as a means of empowerment for their female owners.”

+Critique

Evaluation Are there results yet to be seen or experienced? Should we rethink the specifics to make the method more

successful?

Suggestions for future research: Find consistent ways to measure social outcomes Measure change in multiple places

+Questions?Thank you for your time!