Just a week ago, I had the opportunity to visit a rural village near Trichy, Tamil Nadu to assist with the pilot of an upcoming study that CMF is conducting with Access Development Services (Delhi). It was a great opportunity to put theory into practice and, in comparison to the hustle, bustle and smog of Chennai, Trichy was (literally) a breath of fresh air.
Of course, being a complete urbanite, I had never visited a village - much less an Indian one - before and I was not sure what to expect. But what I found was that the village was much more sanitized and advanced than I had imagined. In particular, there was a pervasive laid-back vibe in the village that made the trip very enjoyable.
That aside, and even though our pilot sample was extremely small (we only interviewed 4-5 households), I made two interesting observations:

I’ve noticed that the gold standard in Microfinance research seems to be the “randomized control trial”, offering an unsurpassed level of experimental sophistication. From a statistical viewpoint, a randomized trial of a sufficiently large population allows researchers to ascribe causality. This is important in the impact evaluation of a policy.
While RCTs may be new to economics, they are nothing new to the natural sciences which have for a long time emphasized the importance of randomization. However, trials in the natural sciences (especially medicine and theoretical physics) control two one other crucial biases – the placebo effect and observer expectation. This is accomplished through the “double-blind trial” in which neither the sample nor the researcher know whether they belong to the trial or the experiment.

For an institution such as the Centre for Microfinance, I am sure many factors are considered before a research project is initiated – is it socially and economically feasible, do we have the research capacity to effectively implement this project, etc.?
The first question that is probably asked, however, is “why should we research this”. If a fact is so widely accepted to be true – say, that people will borrow more if interest rates are lower – is it even worth the time to research this? The nature of most of the research seems to be the “impact evaluation” of various programs that have, until now, been untested.
The research is justified by the simple fact that whatever the findings of the research, keen policy-makers may mold new initiatives based on the findings of the project. But research is also, sometimes, ill-conceived. Though I certainly do not agree, many consider America’s investment in theoretical physics to be a misdirection of resources because any intellectual gain resu…

Yesterday, I came across an interesting news article titled: 'Farmers to get weather, crop insurance from state insurers'. Click here for the complete article.
Weather Insurance has been a very important topic in research circles and we at CMF have a dedicated site that gives lot more detail on the projects that CMF is currently engaged in pertaining to weather and rainfall insurance. Here is the link for the site.
It is interesting to note that the move to allow state insurers to provide weather and crop insurance now comes as the fears of drought loom large. One may tend to be cynical in asking "Has a drought never taken place before this?", however, this is a welcome sign. I still feel though that one must take into account many other factors when it comes to giving weather insurance to the farmers: it would be great to understand the extent of their needs rather than providing them yet another financial product. The aforementioned move has been targeted at non-loan…

Author - Dhruv Sood



Despite the gradual increase in irrigation, almost 65% of the Indian agricultural sector still depends on erratic and unpredictable monsoons. Cropping decisions- like which crop to plant, time of sowing, which inputs to use- generally depend on the advent of the monsoon season as well as on farmer expectations of rainfall. Owing to the more unpredictable nature of monsoons in recent years, when there is little (droughts) or too much rainfall(floods) farmers face serious risks and stand to lose a large portion of their produce. Further, informal risk-coping mechanisms do not work well with such covariate risks which generally affect most people in a given cropping area at similar levels.

The Centre for Microfinance (CMF) brings to the spotlight the research agenda in various facets of the financial inclusion agenda, including results from rigorous social experiments[i] around the world as well as the policy agenda for which this research is designed. This article compiles several studies and background literature on Microsavings.
The literature on formal savings starts by saying that members of the poorest section of a society often choose to stash their savings under mattresses due to lack of better options or a lack of knowledge of formal products. Researchers collaborated with a rural bank in Kenya to randomly provide small business owners access to savings accounts. Despite no interest on deposits and substantial withdrawal fees, the product was extremely popular, suggesting that existing alternatives were worse.

Author: Parul Agarwal
The case of little response from the target population towards both the conventional and innovative financial products in rural areas has received a lot of global attention. It has been suggested that low literacy levels and, more importantly, the lack of financial awareness are responsible for this phenomenon. In order to address this issue, numerous financial literacy training programmes have been designed, tested, and implemented using various methods and technological setups. Significant research has also been done to evaluate the effectiveness of these training programmes but their contrasting and inconclusive results are hardly of any use to the policymakers. All this muddled up landscape of financial literacy can be attributed to the lack of a universal definition of the term, making it difficult to tag an individual as “Financially Literate”. Although the need and importance of financial education has been acknowledged globally, there exists no benchmark t…

Author: Deepti Kc
The Microfinance Institutions Bill has been cleared by the Union Cabinet and introduced to the Lok Sabha. If approved, MFIs would by regulation be required to register with the Reserve Bank of India (RBI). The Reserve Bank of India (RBI) has already released specific guidelines regarding the eligibility of microfinance institutions (MFIs) for priority sector lending. In an attempt to understand the RBI guidelines in the context of microfinance clients, 928 clients were interviewed in Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh, and West Bengal. As  convenience sampling method was used, this study does not represent the whole population of microfinance clients.

Author: Gedeon Lim
Building on the success of our MRAP program, the Centre for Micro Finance (CMF) is proud to announce the latest milestone in our drive to build research capacity and excellence in the Microfinance sector: the CMF E-Training website (http://cmfetraining.wordpress.com) and the CMF E-Library website (http://cmfelibrary.wordpress.com)

Authors – Sitaram Mukherjee, Mudita Tiwari
In partnership with FINO, CMF is evaluating a door-to-door step banking services,FINO has a network of Business Correspondents or Bandhus, who open no-frills savings accounts with the Union Bank for the clients. They operate in areas where formal banking services are not available and clients belong to low-income groups.

The Bandhus use terminal (hand-held) machines to conduct savings and withdrawal transactions. The baseline data collection was conducted in Varanasi and Azamgarh districts of Uttar Pradesh to assess the household information, income and expenditure habits, loans and savings information. The clients were also provided basic Financial Literacy Education by FINO. With the endline currently underway, the most innovative part about the endline process is the digital data collection being conducted on the notebook and the tablets.Currently 12 notebooks, and 12 tablets are being used to survey a sample size of 3,000.

While digital data collection is a significant departure from the usual paper and pen data collection method, there are both advantages and disadvantages to each data collection method.  However, digital data collection is a step into the future because it allows for integration of data collection, data entry and data checks much more efficiently over a shorter time frame.  Before making a decision to use digital or paper formats, the management must keep the cost, quality, staff quality and infrastructure issues in mind. The following table highlights the differences between these methods of data collection:

Microfinance news summary (June 15- June 30)


According to the first edition of Microfinance Institutions Network (MFIN)’s quarterly report, MFIs located outside Andhra Pradesh (AP) has shown growth during 2011-12 with gross loan portfolios growing by 22% over the previous year. However, if AP is also included, the gross loan portfolios shows a decline of 15% compared to previous year. In AP alone, the portfolio decreased by 38% over the previous area.

Over the past seven years, the Centre for Microfinance (CMF) has conducted and implemented several impact evaluation studies, mostly using randomized controlled trials. A new series of factsheets by CMF compiles results from several rigorous studies in a given field (including studies by CMF and several conducted by external researchers),  as well as providing context for recent and upcoming policy initiatives pertaining to the same.  

The first factsheet of this series discusses recent impact and marketing experiments on Microsavings, and also examines some of the policy issues surrounding this subject. Please mention if there are other relevant studies I may have missed out while compiling this factsheet. 

"Profiteers have hijacked the microfinance".. that is what a new book written by Hugh Sinclair alleges. I am not denying that many from this industry are making profit. However, time and again, i am tempted to ask the critics of microfinance if they can answer what would happen to microfinance clients in the absence of microfinance. Why do clients take loans from microfinance? Or in the absence of microfinance, will banks reach out to these low income clients?

I came across a reference to a paper that was written in the 1800s (in Dublin), where the researcher attempted to help the poor in his neighborhood by employing them in spinning linen-yarn. He reflects on some of the limitations of his endeavor:
“Another observation and a most important one is this: that we are not to be immediately discouraged by the failure of an attempt to relieve the poor, nor to pronounce at once that the scheme is injudicious or inefficient. It may have failed from some mismanagement in the execution; and if that were corrected, might succeed perfectly”
It was a little strange to be nodding along to an account written over 200 years ago, but it did echo some familiar concerns. First of all, can the success of an intervention really be this random? --where had a different ‘intervener’” been chosen, the results could be drastically different even if the intervention remained the same?

Some argue that microfinance alleviates poverty and some claim that microfinance causes over-indebtedness among the poor and thus, it has become even more important to understand the effective of microfinance. Thisarticletalks about research findings from two randomized evaluations - one from rural areas of Morocco and the other from Kolkata, India (which is also aCMFstudy).


Thestudy conducted in Moroccofound that even though, microfinance banks increased people’s access to loans, it did not cause any “significant rise in the number of new businesses being set up”. The study found that the profits that clients made from their business were used to pay the interest on the loans.
Likewise,the study conducted in Kolkatafound that clients who received a grace period before they begin repayment invested almost 10% more of their loan into their business, however, greater flexibility in repayment increased default. 
The article concludes by suggesting that MFIs could probably offer clients an o…