Microfinance: impacts on Poverty and women’s status

Darryl McLeod/Norma Fuentes Summer 2012 Econ/Soci 5808

Migration v. microfinance checklist Migration/remittances:

Poverty reduction: falls at both ends of corridor

Productivity/earning: rise as migrants earn more w/ more capital per worker.

Gender imacts: ?See Morrison et al. review (2009)

Inequality: for world, nationally: creates political problems locally– “peer effects”.

Macro-development: IMF has some concerns, WB-IDB say large potential gains

Microfinance:

Poverty reduction??: perhaps long term; insures against shocks, diversifies..

Productivity: ? Adds to number of small traditional firms (the rickshaw problem)…

Gender impacts: CCTs and pensions suggest positive

Macro-development ??: BGD, India have done well, bit SLV,PHL,MEX, GTM??

Income inequality: depends on interest rates.. (baseline: with moneylenders).

Six key MIF Studies, including four RCT (randomized control) trials:

• #1 Pitt and Khandker (1998), Morduch 1998 and Khandker (2005). Study BRAC, Grameen bank and RD-12 (gov. run rural development boards) all lending to functionally “landless” see A&M 2010 p. 285.

• Most cited result from 1998 study is that for ever 100 Takas lent to women, consumption increases by 18 Taka (11 for men). Schooling of boys always increases, but for girls only if woman borrows....see p. 289

• Khandker (2005) looks at two surveys 91-92 and 98-99, now finds just 8 Taka per 100 borrowed increase in women’s consumption, but microfinance contributes 1/3 to sharp poverty decline especially severe poverty (Table 9.1 below).

• But Roodman and Morduch (2009) find causality runs from income to loans, and flaws in extreme poverty calculation.

Khandker, 2005 results, as recomputed by A&R chapter 7, page 291

Six key MFI Studies, including four RCT (randomized control) trials:

• #2 Karlan and Zinman (2010) South African consumer loans randomly approved by using computer software to relax lower bound of credit scores– see A&M 2010 p. 296)

• Loans profitable despite higher default rate, and they reduced poverty recipients more likely to keep their jobs, 16% increase in income, 19% decrease in poverty and 4% reported less hunger in household.

Six Key MFI impact studies (cont.) RCT in the Philippines:

• Karlan and Zinman (2009) again, this time business loans in metro Manila. Again loans randomly approved for at normal credit scores using modified software– see A&M 2010 p. 298.

• 1272 of 1602 loans randomly approved, but strange results. No increase in business investment, instead business heads, men mainly cut staff and became more profitable...

• Not clear why loans triggered downsizing???

Six key MFI impact studies (cont.) #3 Banerjee et al. 2009 in urban India

• Spandana, big micro lender randomly selects 52 of 104 new urban sites in Hyderdad India to open new microcredit lenders... new ground for micro loans, about 1/3 of borrowers operated a small business with profits of 3040 rupees ($76)-- see A&M 2010 p. 299.

• Households identified as likely to start new business cut consumption of durables and “temptation” goods, but other households just bought more durables...

• No social benefits (poverty, women’s empowerment, health impacts “negligible”

Six Key MFI impact studies (cont.) #4 Sri Lanka business loans, Suresh de Mel, Mackenzie & Woodruff (2007)

• Existing businesses with less than < $1000 in capital were given small $100 or $200 “prizes” in cash or supplies at random—then 400 firms surveyed 9 times 2005-2007 see A&M 2010 p. 301.

• About 58% of small firms invested “prizes” in business to earn 5.7% monthly returns (95% annually) well above 16-24% bank interest rates.

• Still few social benefits men did better, women* earned zero on average... education helped, 50% of women and 20% of men earned less than bank interest rates. *On women see de Mel et al. 2007

Six key MFI studies (cont.) : Townsend et al. in Thailand villages 1992-97

• MFI institutions of several types exist in Thai villages: (1) Buffalo banks (2) Rice banks (2) Lending (3) member savings (4) pledged savings...

• Impact villages depends on type of institutions they have

Ananya Roy’s (2010) Poverty Capital: microfinance as global development strategy

Sees 3 key MFI tendencies:

• Ananya Roy’s (2010) book Poverty Capital: MF as global development strategy

1. Credit as human right, opportunity not equality, Mohammed Yunus, Hernando De Soto

2. Creative capitalism (Felicita in Guatemala at right– Kiva, style direct lending, double bottom line

3. Critics of MFI: microsharks? Double agents?

A regional clash of MFI strategies?

Finding a control group

Gender issues: Becker’s model of household investment in health

Mainly women in Grameen bank

Literacy and fertility

Microcredit expands

Employment increases, but mainly informal

Key Bangladesh studies • Khandker, Shahidur R. 1996. Role of Targeted Credit in Rural Non-farm

Growth. Bangladesh Development Studies 24(3 & 4). • Khandker, Shahidur R. 1998. Fighting Poverty with Microcredit: Experience

in Bangladesh (New York: Oxford University Press). • Khandker, Shahidur R. 2000. Savings, Informal Borrowing and

Microfinance. Bangladesh Development Studies 26(2 & 3). • Khandker, Shahidur R. 2005. Microfinance and Poverty: Evidence Using

Panel Data from Bangladesh. World Bank Economic Review 19(2): 263–86.

Empowerment of women (Roodman, chapter 6)

Growth accelerates in BGD (Mcleod, 2008)

Poverty falls by national measures (Mcleod, 2008)

Health indicators improves as well

Exercises for Monday June 29th

Referernces

Sri-Lanka papers: Sri Lanka Suresh de Mel & David McKenzie & Christopher Woodruff, 1. 2009. "Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns," American

Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 1-32, July. 2. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Are Women More Credit Constrained? Experimental

Evidence on Gender and Microenterprise Returns," IZA Discussion Papers 3743, Institute for the Study of Labor (IZA) http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2008.123.4.1329 Innovative Firms or Innovative Owners? Determinants of Innovation in Micro, Small, and Medium Enterprises Suresh de Mel & David McKenzie & Christopher Woodruff, 2008 Who are the microenterprise owners?