1. Analysis of Impact of microfinance on rural economy Amit Kumar Keshav Kumar Pankaj Kumar ShilpaDhawan

2. 2 “Most of the poor … are in deep trouble due to these loans. …Poor people are committing suicides because of peer pressure of the organizations for repayment” Andra Bhoomi, 9/4/06 “Micro-credit has been changing people's lives and revitalizing communities” UN, 2005, Year of micro-credit

3. The microfinance promise 3 New Management structures New contracts Innovations New attitudes

4. Microfinance: what is it? 4 Often perceived as… …whereas objectives are

5. 5 The needs of poor people are varied.. Protection against Health shocks Lifecycle needs What low income clients need? Protect against sudden death Protection against loss of assets Need to build or improve homes Protection against weather shocks Send money to their families when migrate

6. MFIs’ interest rates in the world 6 Indian MFIs are the most efficient in the world (M-Cril)

7. Why Microfinance can change the way the world works

8. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 8

9. Impact evaluation is different from monitoring Impact evaluation and monitoring are different Monitoring To monitor the development of the program as a whole, and of its component projects, in relation to changes in the context and circumstances of their implementation To monitor the development of the program as a whole, and of its component projects, in regard to goals, timelines, and any unforeseen circumstances that may occur 9

11. Labor supply and demand

12. Markets

13. Women empowerment

14. Schooling

18. Could also be negative (violence may increase)

19. Could be positive if women have more bargaining power or if previous inability to pay fee

20. Could also be zeroChildren education and health

21. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 12

22. Why is it important to measure impact? Current scenario implicitly subsidizes microcredit, but it may not last without evidence So do benefits justify substantial costs? Even if clients repay and continue to come, microcredit may not be beneficial to them (they may not be rational when they make the decision to borrow) Micro Finance is subject to political influences and reactions are very emotional; rigorous impact evaluations are essential Social investors should also be interested 13

23. Understanding impact It is not only important to understand final impact, but also to understand how this happened. This will help draw very useful lessons for improving programmes and designing new programmes Also, it is important tot understand on whom microfinance has the most impact For ex, does it have a positive impact on the poorest of the poor? Some claim they should be served by other services, some that they can benefit from microfinance How can programmes be designed that have an impact on them? 14

24. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 15

25. Imagine.. In 2000, Spandana clients have a monthly income of 1000Rs in average In 2001, micro-credit programme is introduced. In 2002, the monthly income of Spandana clients is 1500Rs. in average What do you conclude? 16 The before-after difference may be due to other things, in addition to the programme effect

26. Now.. Look at these facts The top quarter Grameen borrowers (in terms of loan size) enjoys 15% higher consumption per capita than households in the bottom quarter. 62% of the school-age sons of Grameen Bank borrowers are enrolled in school versus 34% of the sons of eligible households that do not borrow. For daughters, the Grameen advantage is 55% versus 40%. What do you conclude? 17 Borrowers and non borrowers are different before the Programme: this is the SELECTION BIAS

27. How to evaluate impact of microfinance? Compare before and after Other things may be going on Compare borrowers to non-borrowers Selection bias Compare villages with microfinance and villages with microfinance Non random placement 18

28. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 19

29. So what to do? We could compare new borrowers to old borrowers Takes care of selection effect and of non random placement 20

30. But.. Are old and new clients the same? Old clients may have been more entrepreneurial, and new clients are the ones who imitate MFI may have targeted poor people first and then everybody in the village (reverse may be true too) 21

31. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 22

33. Business scale and profitability

34. Labour supply

35. Income

36. Intra Household decision Making

37. Asset Ownership

39. Unit of randomization We can randomize at different levels: Individual level Group level (school, class, mf group etc.) Village or slum level This depends on programme, presence of externalities etc. 25

40. How do we randomize in practice? We can randomize: By phasing in the programme During the pilot phase By encouragement design By lottery when funds are limited 26

41. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 27

42. What problems can we face on the field? And what can we do about them? 28

43. What is an impact evaluation? Why impact evaluations? Doing an impact evaluations is hard… So what to do? Impact evaluation design Randomization in practice Other research issues 29

45. Impact Study 1) 76.8% of the clients experienced significant reduction in their poverty over the last four years of which; i. 38.4% moved from Very Poor to Moderate Poor ii. 17.6% moved from Very Poor to Not Poor iii. 20.8% moved from Moderate Poor to Not Poor 2) 38.4% are in the Non Poor category. 3) 80% witnessed increase in income levels. 4) Women actively participate in family decisions. 5) Most of the members’ children are being sent to schools. 6) 17 different combinations were used as paths out of poverty.

46. Remove The Myths The poorest are too costly to reach & motivate Institutions for the poor cannot be financially self-sufficient Such institutions will only add a debt burden to the poor Source: The State of the Microcredit Summit Campaign Report 2003

47. Growth Source: The State of the Microcredit Summit Campaign Report 2003

49. Financial Self-Sufficiency (FSS) measures the extent to which its income from operations covers operating costs after adjusting for all forms of subsidy and the impact of inflationSource: M-CRIL Microfinance Review 2003

50. Powers of… Entrepreneurship Power of Ideas Self preservation, Survival & Betterment Appropriate Capital Appropriate Assistance

51. 4 Research areas to maximize micro finance impact 36 1 2 Impact and product design Micro finance plus Maximize impact On client 4 3 Finance and Organizational issues Policy

52. Thank You