Download sector_report1.pdf - Microfinance and Development ...

CHAPTER 9
Some Ongoing Research on
Indian Microfinance 1
This chapter describes ongoing research at the Centre for Micro Finance (CMF), which was
established in February 2005 as a specialized research centre at the Institute for Financial
Management and Research (IFMR) in Chennai, and represents the largest single concentration
of ongoing research on microfinance in the country. The chapter presents some of CMF's
ongoing research projects, and is divided into five sections: impact evaluation; product
design; microfinance "plus"; financial and organizational issues; and sectoral and policy issues.
1. Impact evaluation 2
While practitioners generally agree that microfinance has improved the lives of the poor,
critics assert that it sometimes leads people to borrow too much, to the extent that
overindebtedness can lead to suicides in extreme cases. The recent controversy in Andhra
Pradesh shows that the impact of microfinance needs to be more rigorously documented in
order to convince policy makers and regulators that the movement should be supported.
Substantial funds are spent evaluating microfinance programmes. However, many of these
assessments tend to cover organizational, financial and governance variables rather than
developmental impact. While each aspect is important, rigorous investigation of the impact
of microfinance on communities is crucial, in order to show whether providing financial
services to the poor increases household's investment capacity and consumption or results in
other improvements to their livelihoods. Only a small fraction of studies have looked at these
issues rigorously. 3
As a matter of fact, it is very difficult to evaluate the impact of microfinance. Looking at
changes over time can be misleading: a number of poverty alleviation programmes may run
simultaneously, making it difficult to isolate the effect of the microfinance programme alone.
Comparing clients to non clients is problematic: people who choose to take up micro credit
may be intrinsically more entrepreneurial. The ideal would be to compare the state of 'Individual
A + Microfinance' against the state of 'Individual A - Microfinance'. Researchers need to create
such experimental equivalents 4 . The most transparent way to do this is to run a randomized
trial. This is what medical science uses to test whether a drug or vaccine is effective. A similar
method can be applied to evaluate the impact of microfinance: A number of villages are
selected. Half of them (the treatment villages), randomly chosen, are exposed to a microcredit
programme while the other half (the control villages) will benefit from the programme
only later. The experiences of the two groups are then compared to measure programme impact.
Looking at
changes over
time can be
misleading: a
number of
poverty
alleviation
programmes
may run
simultaneously,
making it
difficult to
isolate the
effect of the
microfinance
programme
alone
155