Monday, May 13, 2013

Does microfinance impact development outcomes?

Not necessarily.

According to a new paper, based on randomized evaluation in 104 slums in Hyderabad, by Duflo et al. (2013), microfinance did not lead to “changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment.”

Major findings of the study (extracted from the abstract of the paper):
  • 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.

Read the full paper here.