Helping the Ultra-Poor Use Microcredit in Murshidabad, IndiaPDF version
There is considerable debate about the extent to which microfinance can and should target the ultra-poor. Ultra-poor households often do not have regular income, making it difficult for them to access financial services as they lack the collateral necessary to secure a formal loan. In addition, the ultra-poor face two particularly difficult barriers to using microfinance successfully: First, they may use a loan to meet immediate needs rather than to invest in a productive asset; second, they may also be more vulnerable to income shocks (such as health events) which may make them more likely to default. Providing income-generating assets instead of microcredit has been suggested as a possible strategy for enabling the ultra-poor demographic to benefit from microfinance services, however there are few rigorous studies of this practice.
Over 30 percent of West Bengal’s 82 million residents are believed to live below the poverty line, and an estimated 18 percent of the wealthiest rural citizens actually hold “below poverty line” cards. Murshidabad is one of the poorest districts of West Bengal, and is ranked 15 out of 17 in terms of the Human Development Index. Over 70 percent of the population of West Bengal lives in rural areas. While 46 percent of households sampled in Murshidabad have obtained loans, only 8 percent obtained credit from a formal source.
Bandhan, a Kolkata-based microfinance institution, was launched in West Bengal in 2002 to address economic and social poverty by providing greater access to formal credit. Thanks to rapid growth over the past seven years it now has an estimated client base of over 1.2 million borrowers in 12 states in India, providing a variety of products including loans for microenterprises and agriculture.
This evaluation will help determine whether income generating assets indeed prove to be beneficial to ultra poor households, and what kind of asset provision proves most successful. The researchers will assess the impact of Bandhan’s newest venture: an outreach into ultra-poor households based on the provision of assets rather than cash, preparing the poorest of the poor to eventually become microfinance clients. The first step in the process of extending microfinance to the ultra-poor was to determine who was actually in this category. This was done through social mapping and wealth ranking using Participatory Rural Appraisals (PRAs) in each of the target villages.
After a second verification of selected participants, beneficiaries were divided into a comparison and treatment group, of which the randomly selected treatment individuals received a grant of US$100 to purchase a productive asset of their choice. These assets included both farm and non-farm assets, although livestock, such as cows or goats, was the most popular selection. Households were also given access to a fund for health expenditures – a feature that may reduce their vulnerability.
Bandhan will meet with the selected households on a weekly basis for 18 months to check their status and provide supplemental business-skills training. Upon completion of this training, all households will be surveyed to determine program impacts, and selected households will become eligible for microfinance from Bandhan. One year after the extension of microfinance to selected households, a second follow up survey will be conducted to evaluate the long term impacts of the graduation program and assess how beneficiaries fare as microfinance clients. Measured outcomes will include income, assets, school attendance of children, health, and food security.
Results forthcoming.
