On February 27, CGAP, IPA, J-PAL, and The World Bank hosted a day-long event that presented the latest evidence on the impact of microcredit, discuss the implications for policy and practice, and identify directions for future innovation and research.
The event began with a presentation of findings from six randomized evaluations conducted in six different countries, followed by panel discussions with investors, donors, and service providers addressing the implications of these results for the industry. Panelists also explored promising innovations in product design and delivery channels that could expand the reach and improve the impact of financial services for the poor.
For its January 2015 edition, the American Economic Journal: Applied Economics published the six microcredit studies listed below, as well as a review paper. This collective publication brings a renewed focus to microcredit. Together, these evaluations shed new light on the impact of expanded access to credit on borrowers and their families.
Six Randomized Evaluations of Microcredit: Introduction and Further Steps
Abhijit Banerjee, Dean Karlan, Jonathan Zinman
Causal evidence on microcredit impacts informs theory, practice, and debates about its effectiveness as a development tool. The six randomized evaluations in this volume use a variety of sampling, data collection, experimental design, and econometric strategies to identify causal effects of expanded access to microcredit on borrowers and/or communities. These methods are deployed across an impressive range of locations—six countries on four continents, urban and rural areas—borrower characteristics, loan characteristics, and lender characteristics. Summarizing and interpreting results across studies, we note a consistent pattern of modestly positive, but not transformative, effects. We also discuss directions for future research.
Bosnia and Herzegovina
Britta Augsburg, Ralph De Haas, Heike Harmgart, and Costas Meghir
We use an RCT to analyze the impacts of microcredit. The study population consists of loan applicants who were marginally rejected by an MFI in Bosnia. A random subset of these were offered a loan. We provide evidence of higher self-employment, increases in inventory, a reduction in the incidence of wage work and an increase in the labor supply of 16-19-year-olds in the household's business. We also present some evidence of increases in profits and a reduction in consumption and savings. There is no evidence that the program increased overall household income.
Ethiopia | Oromiya Credit & ACSI
Alessandro Tarozzi, Jaikishan Desai, and Kristin Johnson
We use data from a randomized controlled trial conducted in 2003-2006 in rural Amhara and Oromiya (Ethiopia) to study the impacts of increasing access to microfinance on a number of socioeconomic outcomes, including income from agriculture, animal husbandry, nonfarm self-employment, labor supply, schooling and indicators of women's empowerment. We document that despite substantial increases in borrowing in areas assigned to treatment the null of no impact cannot be rejected for a large majority of outcomes
India | Spandana
Abhijit Banerjee, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan
This paper reports results from the randomized evaluation of a group-lending microcredit program in Hyderabad, India. A lender worked in 52 randomly selected neighborhoods, leading to an 8.4 percentage point increase in takeup of microcredit. Small business investment and profits of preexisting businesses increased, but consumption did not significantly increase. Durable goods expenditure increased, while "temptation goods" expenditure declined. We found no significant changes in health, education, or women's empowerment. Two years later, after control areas had gained access to microcredit but households in treatment area had borrowed for longer and in larger amounts, very few significant differences persist.
Mexico | Compartamos Banco
Manuela Angelucci, Dean Karlan, and Jonathan Zinman
We use a clustered randomized trial, and over 16,000 household surveys, to estimate impacts at the community level from a group lending expansion at 110 percent APR by the largest microlender in Mexico. We find no evidence of transformative impacts on 37 outcomes (although some estimates have large confidence intervals), measured at a mean of 27 months post-expansion, across 6 domains: microentrepreneurship, income, labor supply, expenditures, social status, and subjective well-being. We also examine distributional impacts using quantile regressions, given theory and evidence regarding negative impacts from borrowing at high interest rates, but do not find strong evidence for heterogeneity.
Mongolia | XacBank
Orazio Attanasio, Britta Augsburg, Ralph De Haas, Emla Fitzsimons, and Heike Harmgart
We present evidence from a randomized field experiment in rural Mongolia to assess the poverty impacts of a joint-liability microcredit program targeted at women. We find a positive impact of access to group loans on female entrepreneurship and household food consumption but not on total working hours or income in the household. A simultaneously introduced individual-liability microcredit program delivers no significant poverty impacts. Additional results on informal transfers to families and friends suggest that joint liability may deter borrowers from using loans for noninvestment purposes with stronger impacts as a result. We find no difference in repayment rates between both types of microcredit.
Morocco | Al Amana
Bruno Crépon, Florencia Devoto, Esther Duflo, and William Parienté
We report results from a randomized evaluation of a microcredit program introduced in rural areas of Morocco in 2006. Thirteen percent of the households in treatment villages took a loan, and none in control villages did. Among households identified as more likely to borrow, microcredit access led to a significant rise in investment in assets used for self-employment activities, and an increase in profit, but also to a reduction in income from casual labor. Overall there was no gain in income or consumption. We find suggestive evidence that these results are mainly driven by effects on borrowers, rather than by externalities.
IPA and J-PAL thank implementing partners and funders for supporting this research. By country we acknowledge: Bosnia and Herzegovina: Cowles Foundation, European Bank for Reconstruction and Development, European Research Council, and the Institution for Social and Policy Studies at Yale University; Ethiopia: Amhara Credit and Savings Institute, the David and Lucile Packard Foundation, Family Health International, and Oromiya Credit and Savings Share Company; India: ICICI Bank, J-PAL, Spandana Sphoorty Financial Limited, and The Vanguard Charitable Endowment Program; Mexico: The Bill and Melinda Gates Foundation, Compartamos Banco, and the National Science Foundation; Mongolia: European Bank for Reconstruction and Development, European Research Council, the Institute for Fiscal Studies, and XacBank; Morocco: Al Amana, Agence Française de Développement, International Growth Centre, and J-PAL.