Microfinance

Microcredit in most countries is provided through specialized micro-finance institutions which operate along fairly similar lines: they lend to small groups of clients mainly for self-employment projects. What is the real impact of such credit scheme on poverty and income inequality in the long run? Are there alternative institutional arrangements for the provision of such loans and avenues for state intervention that are more effective in reaching the very poor households that have remained outside the clientele of most existing micro-credit programs? Is the focus on self-employment justified in the absence of data which compares the returns from such projects with those obtained from investments in health, education or in the maintenance of social norms? How big are the benefits of participation, and its impact on household decisions over education, female empowerment, health, and participation to social networks? These are the questions that motivate this project.
A major component of the project involves the collection and the analysis of longitudinal data from a large sample of households in a rapidly growing credit program in Central India that links rural women with the formal banking system. Another component of the project is to investigate in more details the determinants of the duration of such groups, by looking at group characteristics (eg, group size, ethnic heterogeneity, type of interactions with the local bank and public authorities,...) as well as members' characteristics. This once again will provide us with key results on the type of groups that are most likely to be autonomous and viable in the long run. To this end, we collaborate with a Indian NGO, Pradan, which has supervised, followed and advised over 5000 of such informal saving and credit groups over the past decade. This NGO has kept track of most of those groups, and the mortality rate is high among them. We also intend to investigate more theoretically the determinants of microfinance success. In particular, the ambiguous impact of social capital analyzed.