The miracle of microfinance? Evidence from a randomized evaluation
AbstractThis paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9437.
Date of creation: Apr 2013
Date of revision:
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Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-24 (All new papers)
- NEP-DEM-2013-09-24 (Demographic Economics)
- NEP-DEV-2013-09-24 (Development)
- NEP-ENT-2013-09-24 (Entrepreneurship)
- NEP-EXP-2013-09-24 (Experimental Economics)
- NEP-MFD-2013-09-24 (Microfinance)
- NEP-NPS-2013-09-24 (Nonprofit & Public Sector)
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- Mark Rosenzweig & Ahmed Musfiq Mobarak, 2013. "Risk, Insurance and Wages in General Equilibrium," Working Papers 1035, Economic Growth Center, Yale University.
- Alessandro Tarozzi & Jaikishan Desai & Kristin Johnson, 2013. "On the impact of microcredit: Evidence from a randomized intervention in rural Ethiopia," Economics Working Papers 1407, Department of Economics and Business, Universitat Pompeu Fabra.
- Andalón, Mabel & Williams, Jenny & Grossman, Michael, 2014. "Empowering Women: The Effect of Schooling on Young Women's Knowledge and Use of Contraception," IZA Discussion Papers 7900, Institute for the Study of Labor (IZA).
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