Does microcredit lead to an expansion of existing businesses and increase the number of small businesses or wealth generating programs in poor communities? What is the impact of microcredit on the incomes, health, and education of poor families? Despite the very large number of microcredit schemes in operation around the word there is currently no rigorous evidence on these issues. This project is designed to answer these questions.

Spandana, a large and rapidly growing microcredit organization in India, is expanding into a new city (Hyderabad in Andra Pradesh) during 2006. Under this project, their expansion into new communities within the city will be phased in on a random basis allowing for careful analysis of the impacts of the expansion.

One hundred poor communities have been selected by Spandona as potentially suitable for expansion of which 52 have been selected to receive microcredit in the first wave of expansion. Data was being collected from both treatment and comparison communities to determine how increased access to microcredit impacts business activity, incomes, and social outcomes, such as school participation.

104 communities in Hyderabad, Andra Pradesh

The findings from the first large-scale randomized evaluation designed to test the impact of a basic joint-liability microcredit product suggest that, while takeup of loans was significantly lower than predicted, microcredit access does have significant impacts on new business creation and the composition of household expenditure. These effects differ for different households, in a way consistent with the fact that a household wishing to start a new business must pay a fixed cost to do so. Existing business owners appear to use microcredit to expand their businesses: durables spending increases and nondurable spending is unchanged.

Among households who did not own a business when the program began, those households with low predicted propensity to start a business do not increase durables spending, but do increase nondurable (e.g. food) consumption, consistent with using microcredit to pay down more expensive debt or borrow against future income. Households with high predicted propensity to start a business, on the other hand, increase spending on durable assets, reduce nondurable spending, and in particular appear to cut back on "temptation goods," such as alcohol, tobacco, lottery tickets and snacks eaten outside the home. We find no impact on measures of health, education, or women's decision-making.

Please note that the data that is currently available to download is the baseline data for the study.

Abhijit Banerjee, Esther Duflo, Rachel Glennerster, Cynthia Kinnan.

The miracle of microfinance? Evidence from a randomized evaluation
Abhijit Banerjee, Esther Duflo, Rachel Glennerster, Cynthia Kinnan.
October 2009

Spandana, ICICI Bank, CMF

India

Savings, Finance, Microfinance and Entrepeneurship

ICICI Bank