By Kenny Roger, Center for Microfinance, IFMR Research
A recent report titled “Latest findings from Randomized Evaluations of microfinance” by Jonathan Bauchet, Cristoball Marshall, Laura Starita, Jeanette Thomas and Anna Yalouris, throws a lot of interesting insights into the realm of randomized evaluations and how they are being increasingly used by researchers across the globe to better understand financial services for the poor and the impacts achieved when an appropriate financial intervention is introduced.
Some of the recent interventions include the following:
- Researchers evaluated the impact of access to credit by randomizing the placement of MFI branches across a particular region in India. Though its early days to say there has been a considerable impact, it is notable that some households increased non-durable consumption, others reduced expenditure on temptation goods and instead invested in their business or bought more durable goods.
- Fingerprinting intervention in Malawi saw borrowers take smaller loans for instance, when they knew they could be identified, and were more likely to repay as well because of the fingerprinting.
- Changing term structure of debt actually witnessed borrowers investing a greater portion of their loans in businesses and thus registering higher average profits.
- One study in Kenya showed that access to formal savings accounts for market stallholders led to increased business investment and personal income growth.
- There are also instances wherein farmers who had access to rainfall insurance began to shift more towards risky and rain-sensitive crops owing to its capability of generating high profits.
These studies have however studied only one financial product or aspect at a time. The needs of the poor are varied like any other income group and the scope of availability of a wide range of financial services to the same as we all know may not be good enough.
To put things into perspective, consider, Mr A, a farmer by profession who has a bank account, has taken an MFI loan, borrowed money from moneylenders, has remittances from a direct relation and has a life insurance policy. We need to realise that Mr. A, like anyone, is involved in a wide range of financial products or services regardless of whether the provider is formal or informal. A study looking at such a wide set of financial services and how access to the same impacts a person has not been done yet.
To address this, the Center for Microfinance (CMF), IFMR Research, along with Harvard University is studying the impact of access to a broad range of financial services provided by Kshetriya Gramin Financial Services (KGFS) in two districts of Tamil Nadu. KGFS uses a thin customer-facing front-end with robust back-end technology to bring a full range of financial services, along with wealth management advice, to entire communities under its coverage area.
Using a randomized control trial methodology the study aims to understand the specific pathways in which access to a range of financial services can impact not only individual households but also the entire village economy. The outcomes of this study will help in designing products and delivery channels for low income households, as well as inform policy on financial inclusion both for India and the rest of the world.
Highlights of this study will be shared as a series in subsequent blog posts.