The Centre has written numerous in-depth papers that can be accessed by selecting one of the following topics:
Credit and Savings______________________________________________________________________________________
Building Social Capital through Microfinance
February 2011, Feigenberg, Field and Pande
We exploit experimental variation in the frequency of repayment meetings across first time micro-finance borrower groups to show that more frequent interaction among group members builds social capital and improves their financial outcomes. We measure social capital using a lottery which we designed to elicit social preferences in a field setting. Lottery participants who belonged to groups which met more frequently exhibited greater cooperation when offered the choice of adding other group members to the lottery. We provide evidence that this reflects higher expectations of reciprocal behavior. In parallel with this, we also find that clients who
met more frequently were less likely to default in subsequent loan cycles.
Access to Finance in Andhra Pradesh 
November 2010, Doug Johnson and Sushmita Meka
In this paper we measure the state of financial access and levels of financial inclusion in rural Andhra Pradesh. We surveyed 1920 rural households in eight randomly-selected districts of Andhra Pradesh to learn about their access to various financial mechanisms. The survey finds that many rural households have access to formal savings accounts. Regarding access to credit, we find that levels of overall indebtedness are high with most households relying heavily on informal sources for credit.
Disclaimer: This study only measures levels of financial inclusion in rural Andhra Pradesh and its results cannot be generalized for the entire state.
New Opportunities to Tackle the Challenge of Financial Inclusion
August 2010, Ignacio Mas
In this paper we review the relevance of formal financial services - and in particular savings - to poor people, the economic factors that have hindered the mass-scale delivery of such services in developing countries, and the technology based opportunities that exist today to make massive gains in financial inclusion. We also highlight the benefits to government from universal financial access, as well as the key policy enables that would need to be put in place to allow the necessary innovation and investments to take place.
Discounting for You, Me and We: Time Preference in Groups and Pairs
April 2010, Jeremy Shapiro
The author contrasts intertemporal preferences for oneself with such preferences for others. He conducts a laboratory experiment among members of a microfinance cooperative in Ahmedabad, India, in which he elicits measures of time preference and time-consistency under four experimental choice conditions: deciding for one’s own payoff, deciding for another individual, deciding in pairs and deciding in groups of four. Consistent with a simple model of altruism and different preferences for others, he finds that individuals are more patient when making savings choices for others or in groups. Also consistent with this model, he finds that the effect is pronounced in larger groups.
Does Microfinance Repayment Flexibility Affect Entrepreneurial Behavior and Loan Default?
October 2009, Field, Pande and Papp
Recent evidence suggests heterogenous impacts of microfinance loans, with limited average effects on enterprise growth among the poor. One possibility is that the rigidity of the classic microcredit contract – widely held to be important for reducing default – inhibits investment in microenterprises. To explore these trade-offs, we provide experimental estimates of the consequences for client investment behavior of introducing a grace period before repayment begins. Delaying the onset of repayment by two months significantly increases both business investment and default. Taken together, the results are consistent with clients on the delay cycle choosing investments with more variable returns.
The Miracle of Microfinance? Evidence from a randomized evaluation
October 2009, Banerjee, Duflo et al
Microcredit has spread extremely rapidly since its beginnings in the late 1970s, but whether and how much is helps the poor is the subject of intense debate. This paper
reports on the first randomized evaluation of the impact of introducing microcredit in a new
market. Half of 104 slums in Hyderabad, India were randomly selected for opening of an MFI
branch while the remainder were not. We show that the intervention increased total MFI
borrowing, and study the e¤ects on the creation and the profitability of small businesses,
investment, and consumption.
Who are the micro financiers? A study of social network brokerage in Indian MFIs
August 2009, Prasanna Kanan
A question that has been rarely asked within the microfinance literature is whether micro-lending initiatives are helping to truly alter the social dynamics in impoverished regions, or if it simply reinforces existing configurations, particularly with the key intermediaries concerned. The central question of is therefore the following: who are the microfinanciers, the intermediaries in microfinance programmes, and are they the ones who actually stand to benefit from the phenomenon? Are they simply those who have always held power and influence in such regions, and if so, should we aim to replace them entirely with new schemes and networks, or attempt to co-opt them into participating in such microfinance initiatives?
Dosas by the Dozen: Theory and Evidence of Present Bias in Microenterpreneurs
April 2009, Dean Spears
Why do so many poor people maintain identical
small businesses? A model of choice among microenterprise types as a
bandit problem with present bias argues that naive present bais can
prevent experimentation with profitable novel business possibilities.
Time consistency and sophistication are each sufficient to eliminate
this trap. Survey data on residents of slums around Hyderabad confirms
that distinct indicators of present bias and of sophistication are
associated with microenterprise type.
How do women in mature SHGs save and invest their money?
November 2007, Lucie Gadenne and Veena Vasudevan
This report looks at the credit behaviour of
Self-help group (SHG) members over time. The authors find that surveyed
SHG members use their loans for consumption purposes, indicating SHG
livelihood may not be effective in inducing members to spend more of
their loans on productive assets. At the same time, we find that
members value the saving component of SHG membership, but at the same
time, continue to use alternative savings options such as banks and
chit funds.
Transaction costs in group micro-credit in India: Case studies of three microfinance institutions
August 2006, Savita Sankhar
Through
review of literature and case studies, this paper takes an in-depth
look at transaction costs and their affect on lending interest rates.
During this analysis, the discussion focuses on the three key types of
costs that a lending institution incurs when it provides a loan: 1) the
cost of the money that it lends; 2) the cost of prudent financial
practices such as provisioning for loan defaults; and 3) the cost of
transaction.
Empirical analysis of the mechanisms of group lending
August 2005, Adam Ross and Paula Savanti
Much
of the microfinance literature focuses on joint liability and its
ability to overcome informational asymmetries by exploiting local
information and social capital among borrowers. This study examines how
joint liability works in practice by directly interviewing clients of
microfinance institutions throughout two states of India. Through these
interviews, the study examines how groups screen their members, monitor
behaviors and investments, and enforce repayment. The findings are
analyzed in reference to the predictions from the extensive literature
written on the subject of joint liability.
Profiling of micro enterprises in Tamil Nadu and Uttar Pradesh
August 2005, Adam Ross and Paula Savanti
This
study examines how joint liability works in the field by interviewing
microfinance clients in Tamil Nadu and Uttar Pradesh. The study focuses
on how groups screen their members, monitor behaviors, investments, and
enforce
repayment.
Microfinance “Plus”_______________________________________________________________________________________
Micro-loans, Insecticide-Treated Bednets and Malaria: Evidence from a Randomized Controlled Trial in Orissa (India)
March 2011, Alessandro Tarozzi, Aprajit Mahajan, Brian Blackburn, Dan Kopf, Lakshmi Krishnan, Joanne Yoong
This paper explores the take-up rate of health-protecting technology, specifically insecticide-treated bednets (ITNs),
through micro-consumer loans, as compared to free distribution and control conditions. Despite the un-subsidized price, 52 percent of sample households purchased at least one ITN, leading to 16 percent of individuals using a treated net the previous night (when surveyed), relative to only 2 percent in control areas where nets were not offered for sale. However, the increase fell significantly short of the 47 percent previous-night usage rate achieved with free distribution. Most strikingly, we find that neither micro-loans nor free distribution led to improvements in malaria and anemia prevalence, measured using blood tests. We examine and rule out several plausible explanations for this latter finding. We conjecture that insufficient ITN coverage is the most likely explanation, and discuss implications for public health policy.
Do Traditional Institutions Constrain Female Entrepreneurship? A Field Experiment on Business Training in India
January 2010, Erica Field, Seema Jayachandran and Rohini Pande
This
paper explores how traditional religious and caste institutions in India that impose restrictions on women's behavior influence their business activity. Our analysis makes use of a field experiment in which a randomly selected sample of poor self-employed women were trained in basic financial literacy and business skills and encouraged to identify concrete financial goals.
Housing microfinance: Designing a product for the rural poor
November 2007, Cheryl Young
This
study discusses the potential of providing housing finance to the poor
through microfinance institutions (MFIs). Using a demand assessment
conducted at Ankuram Sangamam Porum (ASP) in Andhra Pradesh, this paper
demonstrates how an MFI can develop a housing microfinance product
based on their clients’ socioeconomic status and demand for the product.
Linkages
between microfinance and effective education with a focus on parental
involvement: An exploratory study in Andhra Pradesh
August 2005, Margot Quaegebur and Srivata Marthi
Much
research has been done on the impact of microfinance on education,
mostly focusing on quantitative aspects such as literacy, enrolment and
drop out rates. This exploratory study shifts away from the
quantitative aspect of education, and focuses on the quality of
education: how the quality could be improved, and how MFIs could play a
role inimproving the quality of education. Moreover, this study also
analyzes the effects of microfinance clients sending their children to
school.
Insurance and Innovative Products_________________________________________________________________
Micro-Housing Loans for Micro-Entrepreneurs: A Needs Assessment
January 2010, Minakshi Ramji and Stuti Tripathi
This study explores how best to design and provide a housing microfinance product through an MFI which is specifically targeted to new home construction by low-income communities. As such, the research agenda was determined by product details that the bank wished to iron out.
Barriers to Household Risk Management
August 2009, Shawn Cole et al
Financial engineering offers the potential to significantly reduce consumption fluctuations faced by individuals, households, and firms. Yet much of this promise remains unrealized. In this paper, we study the adoption of an innovative rainfall insurance product designed to compensate low-income Indian farmers in case of deficient rainfall during the primary monsoon season. We first document relatively low levels of adoption of this new risk management technology: only 5-10% of households purchase insurance, even though rainfall variability is overwhelmingly cited by households as the most important risk they face. We then conduct a series of randomized field experiments to test theoretical predictions of why adoption may be low.
Contract structure, risk sharing and investment choice
June 2008, Greg Fischer
This paper explores why few microfinance-funded businesses grow beyond subsistence entrepreneurship and whether the structure
of existing contracts discourage risky but high-expected return
investments. Using informal insurance and formal financial contract
theories, the author argues equity-like financing, in which partners
share both the benefits and risk of more profitable projects, could
increase risk-taking and profitability.
Housing microfinance: Designing a product for the rural poor
November 2007, Cheryl Young
This
study discusses the potential of providing housing finance to the poor
through microfinance institutions (MFIs). Using a demand assessment
conducted at Ankuram Sangamam Porum (ASP) in Andhra Pradesh, this paper
demonstrates how an MFI can develop a housing microfinance product
based on their clients’ socioeconomic status and demand for the product.
Health shocks and economic vulnerability in rural India: Break the vicious circle - recommendations to Seva Mandir
September 2005, Annie Duflo
After
assessing the current state of health services in Udaipur district, one
of the poorest in Rajasthan, this paper recommends three health
insurance schemes that could benefit low-income rural households. Poor
rural households are very vulnerable to economic shocks and health
shocks are among the most important and most unpredictable type of
shocks; a serious illness or accident can result in enormous health
expenditure.
Sector-wide and Policy Issues____
Does NREGA Help the
Rural Poor Cope with Bad Weather?
September 2009, Doug Johnson
The rural poor in developing countries have great diffculty in coping
with adverse weather. Workfare programs may serve as an important
mechanism for allowing poor households to deal with the effects of such
weather related shocks. We evaluate
whether India's new workfare program for rural areas, the National Rural
Employment Guarantee Act (NREGA), allowed households in one state
to mitigate the e ects of weather induced income shocks by looking at
whether NREGA participation is responsive to changes in rainfall. We
nd that NREGA did indeed allow households to o set the e ects of
weather induced income shocks. While we are unable to precisely identify
the relationship between changes in income and participation in NREGA,
we show that the relationship is strong enough to be practically significant.
How Do Caste, Gender and Party Affiliation of Locally
Elected Leaders Affect Implementation of NREGA?
September 2009, Doug Johnson
We estimate the impact of the caste, gender, and party affiliation of
locally elected leaders on implementation of India's new workfare program
for rural areas, the National Rural Employment Guarantee Act (NREGA),
in Andhra Pradesh (AP), a state in Southern India. While, for most
castes, we nd a modest increase in participation by members of the same
caste of the leader in the program, we find no impact on a broad range
of other program outcomes or any e ect of reservations for women. Our
results suggest that NREGA in AP may be less susceptible to capture
than other government programs.
How do microfinance clients understand their loans?
October 2008, Akhand Tiwari, Anvesha Khandelwal and Minakshi Ramji
In
recent years, discussions on microfinance policy and regulation in
India have tended to centre on the extent to which small borrowers
understand their loans and the financial liability implicated therein.
This paper aims to provide an explanation of how MFI clients understand
their loan contract and the implications for policy. The authors find
that small borrowers are able to identify the size and duration of the
loan and their weekly instalment on their loan.
India's MFI transparency gap: What causes it and what should be done?
April 2008, Daniel Radcliffe
Despite
recent rapid growth of the microfinance sector in India, there still
exists a large transparency deficit due to ad hoc accounting and
reporting procedures by MFIs and the regulatory environment that
permits these practices. If left unchanged, the current situation could
pose real risks to the sector’s health. However, at the same time,
excessive regulatory requirements could stunt sector growth and
overburden regulators. This paper attempts to identify areas where
regulatory interventions most effectively narrow the transparency gap,
which would entail small administrative cost to the MFIs while
minimising supervisory cost to the regulator.
Linking Financial Inclusion with Social Security Schemes
January 2008, Anant Jayant Natu, Dr. Aashish Bansal, Amrita Kurian, Gurinder Pal Singh Khurana and Tanushree Bhusha
This
paper explores an innovative way of achieving financial inclusion — not
just in terms of access but in usage as well. It presents the prospect
of coupling financial inclusion with social security schemes.
Ultimately, the authors argue that the drive towards financial
inclusion as defined by the RBI as "a no-frills account for every
individual who wants one" will be more relevant to the beneficiaries if
it is tied to social security schemes, such as National Rural
Employment Guarantee Programme, that ensures a reliable stream of
income.
Targeting efficiency: How well can we identify the poor?
December 2007, Abhijit Banerjee, Esther Duflo, Raghabendra Chattopadhyay and Jeremy Shapiro
In
this study, the authors evaluate the targeting efficiency of various
assistance programs operated by the government of India and a program
operated by Bandhan, a Kolkata-based micro finance institution. They
find methods used by government programs fail to identify the poorest
of the poor. On the other hand, Bandhan's process, including a
Participatory Rural Appraisal (PRA), generates a reasonably good
indicator of economic well-being and can serve as the basis for
targeting.
Repayment frequency and default in microfinance: Evidence from India
November 2007, Erica Field and Rohini Pande
In
stark contrast to bank debt contracts, most microfinance contracts
require that repayments start nearly immediately after loan
disbursement and occur weekly thereafter. Even though economic theory
suggests that a more flexible repayment schedule would benefit clients
and potentially improve their repayment capacity, microfinance
practitioners argue that the fiscal discipline imposed by frequent
repayment is critical to preventing loan default. This paper, using
evidence from MFI client behavior in West Bengal, shows that changing
repayment schedules from weekly to monthly does not affect default or
client retention rates.
Competition and multiple borrowing in the Indian microfinance sector
September 2007, Karuna Krishnaswamy
Increased
microfinance competition has brought with it a number of positives, but
it has also led to concerns about unethical competitive practices,
reckless lending by MFIs without suitable assessment of clients' credit
absorption capacities and multiple memberships leading to
over-indebtedness and defaults. In this analysis, the authors estimate
the extent of multiple borrowing between MFI clients in a competitive
state in India, and find that multiple borrowers equal or better
repayment records than their single borrowing peers in the same
villages.
Sharpening the debate: Assessing the key constraints in Indian micro credit regulation
November 2006, Daniel Radcliffe and Rati Tripathi
Over
80% of poor households in rural India have no access to formal
financial services, and for those who can access these services, it
takes an average of thirty-three weeks to get a single loan approved.
The goal of this paper is to identify the most commonly cited
regulatory roadblocks to the growth of the sector, explain existing
regulation in these areas, and determine whether or not certain
regulations need modification.
Reputation and communication in microfinance: An exploratory study in Orissa
October 2006, Carissa Page
Microfinance
Institutions (MFI) are often subject to misunderstanding from the
public, suspicion from local politicians and destructive and
ill-informed rumors from competing MFIs. This study uses nearly 50
interviews with stakeholders in Orissa to understand how the press,
politicians and established MFIs perceive MFI growth, and details
recommendations for how MFIs can improve external communications and
work together on issues of mutual interest.
Credit information systems for microfinance: A foundation for further innovation
June 2006, Valerie Rozycki
As
microfinance services expand internationally, one of the main
challenges stems from the information asymmetry that exists between
lenders and borrowers. Without complete information about the
credit-worthiness of borrowers, lending decisions are not optimized and
the performance of microfinance institutions suffers. This study is a
comparative analysis of credit information systems in several countries
that also discusses barriers to development of such systems.
Financial Access__________________________________________________________________________________________
Putting Money in Motion: How Much Do Migrants Pay for Domestic Transfers
November 2010, Shreyas Gopinath, Justin Oliver, Ajay Tannirkulam, Supriyo Bhattacharya, R.R. Kulkarni
We interviewed 274 migrants and their families across 4 migration corridors to understand the costs, channels used and challenges faced by migrants in remitting money within India. Fifty-seven percent of respondents in our sample most recently used an informal mechanism to transfer money - most commonly hawala couriers. While half of migrants would like to make their transfers through banks, the "hidden" costs of obstaining documents needed to open an account, traveling to the nearest branch and waiting in line to send or receive a payment prevent many migrants from doing so (only 30 percent of our sample used banks for transfers). Poor households incur significant costs when sending and receiving money: the median cost of a domestic remittance of Rs. 2000 was Rs. 80 or 4 percent of the transfer amount.
Access to Finance in Andhra Pradesh
November 2010, Doug Johnson and Sushmita Meka
In this paper we measure the state of financial access and levels of financial inclusion in rural Andhra Pradesh. We surveyed 1920 rural households in eight randomly-selected districts of Andhra Pradesh to learn about their access to various financial mechanisms. The survey finds that many rural households have access to formal savings accounts. Regarding access to credit, we find that levels of overall indebtedness are high with most households relying heavily on informal sources for credit.
Disclaimer: This study only measures levels of financial inclusion in rural Andhra Pradesh and its results cannot be generalized for the entire state.
Equity Investment in Indian Microfinance A Guide for Practitioners
January 2010, Michael Chasnow and Doug Johnson
In this report we document the recent rise in equity investment in Indian microfinance and describe the process of obtaining equity financing and working with investors in detail. At the end of the report, we briefly describe two new alternative methods of financing for MFIs – portfolio buyouts and securitisation. .
Financial inclusion in Gulburga: Finding usage in access
January 2009, Minakshi Ramji
In this study, the author examines the success of
the Reserve Bank of India's (RBI) financial inclusion drive by taking
an in-depth look at the drive's effects in Gulburga district in
Karnataka, one of the locations that has claimed to achieve 100%
financial inclusion. The study finds that the number of households with
bank accounts doubled in the district, but still 36% of the sample
remained excluded from any kind of formal savings accounts.Moreover,
usage and awareness of the savings accounts remain low.
Analysis of no frills accounts: A report on Cuddalore district
December 2008, S. Thyagarajan and Jayaram Venkatesan
This study analyses the results of the financial
inclusion drive in Cuddalore district of Tamil Nadu in terms of reach
by geography, cost involved in account opening and maintenance, and the
transactional usage behaviour for these accounts. The study finds that
about 25% of households were not included in the drive and that only
15% of the customers were using their accounts one year after the
drive. That said, operating accounts showed a steady increase in
balance.
An approach paper for the delivery of comprehensive financial services to the informal and unorganised sector
May 2006, Valerie Rozycki
Microfinance services have much potential to
affect grass-roots economic development. However, when lending
institutions lack complete information about the credit-worthiness of
borrowers, lending decisions are not optimized and the performance of
microfinance institutions suffers. Several countries have solved this
problem with formal systems for sharing credit information, and this
paper analyses the viability of such a system in India.
Financing microfinance - The ICICI Bank partnership model
March 2005, Bindu Ananth
Capital
constraint is an issue impeding scaling up of microfinance in India.
Based on an analysis of traditional financing models and ICICI Bank’s
experience in India, this paper analyses the ‘partnership model’ of
financing microfinance institutions (MFIs). This model is unique in
that it combines both debt as well as mezzanine finance to the MFI in a
manner that lets it increase outreach rapidly, while unlocking large
amounts of wholesale funds available in the Indian commercial banking
sector.
Expanding access to financial services: Where do we go from here?
March 2005, Nachiket Mor
60
to 80% of individuals within India lack access to basic financial
services such as savings, credit and basic insurance services. This
paper explores strategies for expanding access to financial services,
including 1) Increased sophistication in the regulation of Banks; 2)
Development of basic financial services infrastructure; and 3) Building
an adaptive regulatory framework.
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