Seven randomized evaluations from around the world show that microcredit does not have a transformative impact on poverty, but it can give low-income households more freedom in optimizing the ways they make money, consume, and invest.
- Demand for many of the microcredit products was modest. In Ethiopia, India, Mexico, and Morocco, when MFIs offered loans to eligible borrowers, take-up ranged from 13 to 31 percent, which was much lower than partner MFIs originally forecasted.
- Expanded credit access did lead some entrepreneurs to invest more in their businesses. In Bosnia and Herzegovina and Mongolia, access to microcredit increased business ownership. All but one study showed some evidence of expanded business activity, but these investments rarely resulted in profit increases.
- Microcredit access did not lead to substantial increases in income. Despite some evidence of business expansion, none of the seven studies found a significant impact on average household income for borrowers.
- Expanded access to credit did afford households more freedom in optimizing how they earned and spent money.
- Six studies suggest that microcredit played an important role in increasing borrowers’ freedom of choice in the ways they made money, consumed, invested, and managed risk.
- There is little evidence that microcredit access had substantial effects on women’s empowerment or investment in children’s schooling, but it did not have widespread harmful effects either. Microcredit did not lead to increases in children’s schooling in the six studies in which it was measured, and only one of the four studies that measured women’s empowerment found a positive effect. Across all seven studies, researchers did not find that microcredit had widespread harmful effects, even with individual-liability lending or a high interest rate.
This paper tests how migrants’ willingness to remit changes when given the ability to direct remittances to educational purposes using different forms of commitment. Variants of a dictator game in a lab-in-the-field experiment with Filipino migrants in Rome are used to examine remitting behavior under varying degrees of commitment. These range from the soft commitment of simply labeling remittances as being for education, to the hard commitment of having funds directly paid to a school and the student’s educational performance monitored. We find that the introduction of simple labeling for education raises remittances by more than 15%. Adding the ability to directly send this funding to the school adds only a further 2.2%. We randomly vary the information asymmetry between migrants and their most closely connected household, but find no significant change in the remittance response to these forms of commitment as information varies. Behavior in these games is then shown to be predictive of take-up of a new financial product called EduPay, designed to allow migrants to directly pay remittances to schools in the Philippines. We find this take-up is largely driven by a response to the ability to label remittances for education, rather than to the hard commitment feature of directly paying schools.
Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in short-run or long-run default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.
Assumptions about individual demand for savings underlie workhorse models of intertemporal choice and intra-household bargaining, banking strategy, and financial inclusion policy. A Philippine bank tested sensitivity to interest rates and account ownership requirements in 10,000 randomized door-to-door solicitations for a commitment savings account. Take-up is substantial (23%), but price elasticity of saving in this account is not significantly different from zero in either the full sample or sub-groups of plausibly marginal savers. The upper bound is less than 0.5 in the full sample, and exceeds 1.0 in only 1 of 22 sub-groups. Nor do we find sensitivity to ownership requirements.
Like many developing countries, the Philippines has made considerable progress toward the Millennium Development Goal of universal access to primary school: In 2008, the country achieved a 92 percent primary school enrollment rate. However, the challenge for education policy does not end with increasing enrollment and filling classrooms. Helping schools find cost-effective ways to improve student learning is also vitally important in light of the resource constraints that many school systems face.
Literacy is an especially critical skill, given the importance of reading for learning in every subject, for future employment, and for children’s ability to navigate successfully through life. Simply providing more resources without changing the learning environment has not proven effective in improving most children’s reading skills, so more innovative approaches are required.
A randomized evaluation by Ama Baafra Abeberese (Columbia University), Todd J. Kumler (Columbia University), and J-PAL affiliate Leigh Linden (University of Texas at Austin) investigated the impact of a one-month “read-a-thon” program sponsored by an NGO in the Philippines. Can an intensive, short-term reading program improve children’s reading habits and reading skills?
- The read-a-thon immediately increased reading activity and improved reading test scores. At the end of the program, children in the read-a-thon schools reported reading an additional 7.2 books at school in the past month and scored 0.13 standard deviations higher than children in the comparison group on tests of reading proficiency.
- Children in the read-a-thon schools read more books at home. Despite the fact that the children could rarely take books home from school, the read-a-thon participants reported reading an average of 1.2 more books at home during the month of the program.
- Children continued to read more books after the program ended. Three months after the read-a-thon ended, children in program schools were still much more likely to be reading than children in the comparison group. However, the impact had faded: children in program schools read 3.1 more books in the past month at school, and scored 0.06 standard deviations higher on reading tests.
Policymakers and microfinance institutions (MFIs) often claim to target poor entrepreneurs who then invest loan proceeds in their businesses. Typically in nonresearch settings these claims are assessed using readily available but unverified self reports from client loan applications. Alternatively, independent surveyors could directly elicit how borrowers spent their loan proceeds. That too, however, could suffer from deliberate misreporting. We use data from the Peru and the Philippines in which independent surveyors elicited loan use both directly (i.e., by asking how individuals spent their loan proceeds) and indirectly (i.e., through a list-randomization technique that allows individuals to hide their answer from the surveyor). We find that direct elicitation under-reports the non-enterprise uses of loan proceeds.