The author (Gedeon Lim) is currently a summer intern with the CMF Knowledge Management Team. He arrived
in India two weeks back and, coming from Singapore, his experience at CMF-IFMR
and Chennai has been amazing. The food, the sights, the sounds and the people
have been truly uniquely India to say the least.
Keen readers of microfinance blogs might recall David Roodman making this post
awhile back on a quasi-experimental evaluation of Microcredit provision in
Thailand where Kaboski & Townsend used an exogenous policy initiative, the
“Million Baht Village Fund (MBVF)”, as a proxy to investigate the impact of
microcredit provision.
The full paper
was recently published in Econometrica and, being foreign to the Indian
Microfinance scene, I thought it might be interesting to see if a simple
cross-country comparison could contribute to the generalizability of impact
evaluations that CMF conducts in India, such as the widely-cited Spandana
study.
Granted, K&T themselves caution against the over-extrapolation of their results. There are also a few key differences:
MBVF (Thailand)
|
Spandana (India)
|
|
Mode of disbursement
|
Village fund committees to all village residents
|
MFIs to women through Joint Liability
Groups
|
Repayment Period
|
<1 year
|
50 weeks
|
Collateral
|
None, only guarantors
|
None, JLG
|
Rules for use of funds?
|
No
|
No
|
Average nominal interest rate/Annual %
rate
|
7%
|
20%
|
So you might ask, if the two studies are so
different, why bother? Well, by virtue of the fact that despite these stark
differences in research methodology and environment, the results of MVBF
closely parallel that of Spandana in three ways: The impact of microcredit on
business starts and investments, on consumption and on woman empowerment.
Firstly, MBVF found no significant increase in
business starts or investment despite increases in business and labor income.
One explanation by K&T is that existing business owners used the credit as
working capital to hire intermediate inputs such as labor. Recall that Spandana
too found a 1.7% increase in business starts and increases in business (durable
goods) investment only for those households likely to start a business. Thus, MBVF
suggests and re-emphasises the idea that microcredit might only benefit
existing business holders and debunks the idea of microcredit as a wonder-pill
to spur micro-business creation.
Secondly, MBVF found substantial increases in
consumption, most notably, on housing and vehicle repairs that can be
interpreted as “investments”. Conversely, consumption on temptation goods like
alcohol and tobacco fell. Spandana too, found that households with existing businesses reduced nondurable spending and cut
back on temptation goods.
Lastly, there was no significant evidence of woman
empowerment in Thailand as measured by increases in spending on children’s
education. Recall Spandana found that microcredit had no
effect on children health and education measures either.
Of course, this superficial comparison alone is not
conclusive. Nonetheless, the remarkable similarities between the impact of
microcredit in India and Thailand – two countries that are different on so many
counts – provides preliminary evidence of the similar impact of microcredit
programs across countries. If further evidence could be found, the impact on
the generalizability and usefulness of the many evaluations CMF conducts would be
profound.
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