Download this Paper Open PDF in Browser

The Miracle of Microfinance? Evidence from a Randomized Evaluation

62 Pages Posted: 14 Apr 2013 Last revised: 18 Apr 2013

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Rachel Glennerster

Massachusetts Institute of Technology - Department of Economics

Cynthia Kinnan

Northwestern University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 10, 2013

Abstract

This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

JEL Classification: O16, G21, D21

Suggested Citation

Banerjee, Abhijit V. and Duflo, Esther and Glennerster, Rachel and Kinnan, Cynthia, The Miracle of Microfinance? Evidence from a Randomized Evaluation (April 10, 2013). MIT Department of Economics Working Paper No. 13-09. Available at SSRN: https://ssrn.com/abstract=2250500 or http://dx.doi.org/10.2139/ssrn.2250500

Abhijit Banerjee (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-544
Cambridge, MA 02139
United States
617-258-7013 (Phone)
617-253-6915 (Fax)

Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

Cambridge, MA
United States

HOME PAGE: http://www.povertyactionlab.org/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Rachel Glennerster

Massachusetts Institute of Technology - Department of Economics ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

Cynthia Kinnan

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Paper statistics

Downloads
4,985
Rank
1,159
Abstract Views
13,949