This project is one of the few to rigorously evaluate the impact of a microcredit program. It takes advantage of the expansion of Al Amana, Morocco's largest microfinance institution, into rural areas of Morocco where access to formal credit is very low. 50% of households sampled in initial surveys indicated that they were in need of credit in the previous year, but never actually requested it.
Policy Issue:
Microcredit is the most visible innovation in anti-poverty policy in the last half-century, and in three decades it has grown dramatically. Now with almost 130 million borrowers, microcredit has undoubtedly been successful in bringing formal financial services to the poor. Many believe it has done much more, and that by putting money into the hands of poor families (and often women) it has the potential to increase investments in health and education and empower women. Skeptics, however, see microcredit organizations as extremely similar to the old fashioned money-lenders, making their profits based on the inability of the poor to resist the temptation of a new loan. They point to the large number of very small businesses created, with few maturing into larger businesses, and worry that they compete against each other. Until recently there has been very little rigorous evidence to help arbitrate between these very different viewpoints.
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Context of the Evaluation:
Those who live on less than 2 dollars a day represent 19% of the population in the dispersed rural areas of Morocco. In the past, most microfinance services in Morocco have been concentrated in the urban and peri-urban areas, while people in rural areas used various forms of informal credit. The level of access to formal credit from a bank or financial institution is very low in these locations: the initial surveys of this project have shown that only 2.5% of those in Morocco living on less than 2 dollars a day borrow from formal credit sources.
Between 2006 and 2007, Al Amana opened around 60 new branches in sparsely populated rural areas . The main product Al Amana offers in rural areas is a group-liability loan, and, since March 2008 , individual loans for housing and non-agriculture businesses were also introduced in these areas. Groups are formed by three to four members who agree to mutually guarantee the reimbursement of their loans, with amounts ranging from $124 to $1,855 USD per group member. Individual loans are also offered, usually for clients that can provide some sort of collateral.
Details of the Intervention:
Within the catchment areas of new MFI branches opened in areas that had previously no access to microcredit, 81 pairs of matched villages were selected. Within each pair, one village was randomly selected to receive microcredit services just after the branch opening, while the other received service two years later.
The baseline survey was grouped in four waves to follow Al Amana’s timeline of branch openings between 2006 and 2007 . Data on socio-economic characteristics, households’ production, members’ outside work, consumption, credit, and women’s role in the household was collected among a sample of households. An endline survey was administered two years after Al Amana intervention started in each wave.
By the time of the endline survey, 16% of surveyed households living in treatment villages had taken a loan from Al Amana. Three-fourths of those who had taken loans from Al Amana received group-liability loans, and borrowers were predominantly men. Households in areas where credit was offered had borrowed an average total of $117 USD from Al Amana at the endline, at an average of about $964 USD per loan.
Results and Policy Lessons:
Al Amana program increased access to credit significantly: households were more than twice as likely to have a loan of some kind in treatment villages relative to comparison villages. The main effect of improved access to credit was to expand the scale of existing self-employment activities of households, including both keeping livestock and agricultural activities.
Among livestock-rearing households, there was an increase in the stock of animals held, and households appeared to diversify the types of animals they held and the types of livestock products sold. This leads to an increase in sales and self-consumption, but no increase in profits. Agricultural sales and profits also increase, but households did not appear to expand into new sectors or create new businesses. A fraction of the extra profits were saved, while another fraction were offset by reduced wage earnings, and so on there was no average effect on consumption across all households.
Treatment effects vary significantly depending on whether a household had an existing self-employment activity at baseline. Households that had a pre-existing activity decrease their non-durable consumption (social expenditures) and consumption overall. This group saves more and borrows more from Al Amana, which is consistent with the need to fund the expansion of their activities. But households that did not have a pre-existing activity increased their food and durable expenditure (with no effect on overall consumption) and, did not see any change in their business outcomes.
