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1.1 Impact evaluation of Spandana's microcredit programme 5 Objective and methodology This study uses a randomized design to evaluate the impacts of Spandana's 6 microfinance programme on income, consumption, usage of financial services, asset ownership, scale of business and its profitability, and intra-household decision-making among their clients in Hyderabad 7 . A baseline survey was conducted in treatment and control slums and a follow-up survey will be administered after the completion of at least one loan cycle. Preliminary results from the baseline survey 8 Some important questions the study seeks to answer include: how effectively does a rainfall insurance programme reduce vulnerability of poor households How does financial literacy influence the decision to purchase insurance How will it affect local risksharing Will policy-holders undertake more projects with a higher return (such as sowing more crops) Will there be any effect on the local price of goods, or on wage rates With an average family size of five and an average monthly expenditure of Rs 5,000, respondents were poor, but not ultra-poor: close to 50% of the respondents were earning under $2 a day but only 6 percent were earning below $1 a day. Businesses were very prevalent in these slums. However, these businesses had little specialized skills 9 , and tended be small, with little capital, little assets and few employees 10 . The loan indebtedness figures indicate that about two thirds of the sample had at least one loan 11 . Almost half of these loans came from money lenders, while few were provided by commercial banks and almost no MFI loan was available at the time 12 . Among those households who did not have a loan, more than half said that they wanted one but could not obtain one. Loans were rarely taken for business expansion: a number of loans were used towards health related expenses. marriages, consumption purposes and for construction and renovation of houses 13 . It was also found that a third of the households had a savings account and while every fourth household had a life insurance policy, almost none had health insurance. Yet it was found that 60 percent of the households who had a sick member had to borrow to pay for the treatment (which was on average Rs 7,500) 14 . Where expansion opportunities appeared possible for these small businesses, they had not been exploited. Although a loan of Rs 10,000 is probably not sufficient for expansion, microfinance might help them expand by "forcing" them to channel additional revenues into expansion (rather than on "wasted" expenditures). 1.2 Impact evaluation of weather insurance, with SEWA, Gujarat 15 Objective and methodology A natural disaster, such as drought or excessive rain, can cause crop failure, leading to substantial hardship manifested in reduced consumption, lower productivity, lower income, distress sales, and borrowing from moneylenders at high rates. The objective of this study is to evaluate the impact of providing rainfall insurance on reducing such vulnerabilities faced by poor agricultural households, and on improving their livelihoods. Some important questions the study seeks to answer include: how effectively does a rainfall insurance programme reduce vulnerability of poor households How does financial literacy influence the decision to purchase insurance How will it affect local risk-sharing Will policy-holders undertake more projects with a higher return (such as sowing more crops) Will there be any effect on the local price of goods, or on wage rates 156 CMF will assist SEWA and ICICI Lombard in developing the product, and SEWA will offer rainfall insurance in a group of villages across three districts in Gujarat 16 . The Centre will measure and
Ongoing Research monitor household vulnerability, consumption and economic activity through surveys conducted at regular intervals during the period of the project. The baseline survey of 1500 households in 100 villages was completed before the product was marketed in May 2006. Preliminary results Households that were rich, and those whose head was literate or educated, were much more likely to purchase insurance than those who were not. In addition, financial contracts are complicated, and it can be difficult for a farmer to understand why she should spend money now, to get an uncertain payout in the future. Indeed, the survey in three districts of Gujarat found that SEWA members had very low levels of financial literacy: when given a short test that included questions about risk, inflation, and interest rates, members scored on average no higher than they would have simply by guessing. This was so despite relatively high math skills, respondents answered, on average, two-thirds of the math questions correctly. Members attitudes towards risk also mattered. In the baseline survey, respondents played a simple game, in which they chose between a "safe" option (the certainty of Rs 50), and increasingly risky options that offered a higher return. Two months after the survey, households who had picked safer choices were much more likely to purchase insurance than those who had selected riskier options. The most important question, however, will be answered only after completion of the study: does rainfall insurance improve the welfare of the households that buy it By carefully tracking households in 100 study villages, the Centre hopes to gain a clear understanding of the benefits, and limitations of, rainfall insurance. 2. Product design of financial services The Grameen model is widely accepted by Indian MFIs. However, do we really know what would happen if we made fixed repayment schedules flexible, or if we moved from joint to individual liability New products may attract more clients, lead to higher impact while keeping default rates unchanged. According to Jonathan Morduch, "the full promise of microfinance can be only realized by returning to the early commitments to experimentation, innovation and evaluation" 17 . The goal of CMF is to collaborate with MFIs and experiment in such a way that we can carefully weigh the costs and benefits of different product designs. Experimenting with various components of credit products will help understand which ones work best and develop new designs that successfully solve information problems while being innovative and closer to the clients' needs. According to Jonathan Morduch, "the full promise of microfinance can be only realized by returning to the early commitments to experimentation, innovation and evaluation" 2.1 Flexible repayment schedules for dairy clients in KAS Foundation, Orissa 18 Objective and methodology Most MFIs offer loan products with fixed repayment schedules - weekly or monthly. KAS Foundation (KAS), for example, has a monthly repayment system for its SHG clients. Yet fixed repayments may not be best for most clients, particularly if their income is subject to variations due to seasonal activities, business cycle, health, and other risks. The Centre is conducting a randomized experiment to evaluate the benefits of tailoring repayment schedules to the dairy industry on the following variables: business income, productivity, households' ability to smooth consumption, and face shocks and repayment rates. In order to analyse the trade-off involved in introducing flexible repayment schedules, the experiment compares two flexible loan products to the existing product of KAS for dairy clients. The first loan product allows clients to delay payment by 2 principal installments at any point of time 157
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Microfinance in India A State of th
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List of Tables Page No Table 2.1 Gr
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Preface and Acknowledgements This r
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Abbreviations ABC ADB BC BF CAR CAG
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CHAPTER 1 Overview and Summary of M
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Overview and Summary of Main Recomm
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1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
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The Light and Shades Study A major
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highest proportion of weak records
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their profitability after accountin
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allow the programme to grow organic
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1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
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Endnotes 1 It is very hard to compa
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as cash with the groups, the true r
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linkages", 11 percent 3rd, and 5 pe
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References APMAS (AP Mahila Abhivru
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CHAPTER 3 Progress Under the MFI Mo
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Progress Under the MFI Model is fun
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Table 3.4 Comparative performance i
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Progress Under the MFI Model on lit
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Progress Under the MFI Model 4 Howe
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Progress Under the MFI Model Refere
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MFIs, and the need for MFIs to plou
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size had actually come down during
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The point at which peer group press
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The lack of contact and communicati
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Box 4.1 Continued 4. MFIs will coll
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Endnotes 1 There will be many disag
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19 The base suicide rate in AP is 1
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References APMAS, 2005, "A Report o
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(such as cattle and houses), and co
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The advantage of the provider model
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Some lessons learnt from experience
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Box 5.2 VimoSEWA: Synergies between
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86 Table 5.1 Main Feature of Health
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Endnotes 1 While the microinsurance
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16 A little less than a fifth of th
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29 The rationale for transfer progr
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Roth, James and Vijay Athreye, 2005
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Issues and priorities for action re
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Endnotes 1 See for instance CGAP (2
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100
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such as Chaitanya who soon became s
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money to support operational expens
Page 108 and 109: finance, and the microfinancial ski
Page 110 and 111: Box 6.1 Continued in experts and to
Page 112 and 113: Endnotes 1 In a sense it always was
Page 114 and 115: 16 Examples are Margdarshak in Luck
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Page 118 and 119: Table 7:1 Commercial bank exposure
Page 120 and 121: The main constraints to the expansi
Page 122 and 123: further review, RBI has modified th
Page 124 and 125: 9 Thus ICICI has sold some of its b
Page 126 and 127: B. Equity Investments by the Ventur
Page 128 and 129: Figure : The Bellwether triangle Lo
Page 130 and 131: Despite the weaknesses the public s
Page 132 and 133: Box 7.1 Continued foreign sources o
Page 134 and 135: Endnotes 1 At this point they will
Page 136 and 137: References ACCION, 2003, "The Servi
Page 138 and 139: SIDBI Foundation for Micro Credit (
Page 140 and 141: categories, depending on the amount
Page 142 and 143: The distribution of total disbursem
Page 144 and 145: Endnotes 1 It should be noted that
Page 146 and 147: B. Donor Participation in Indian Mi
Page 148 and 149: this has dropped to 8% on the curre
Page 150 and 151: and poor populations. More directly
Page 152 and 153: and expansion of available retailer
Page 154 and 155: 11 SDC through various programs for
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Page 160 and 161: in the loan tenure of 24 months. Th
Page 162 and 163: There are two main motivations of a
Page 164 and 165: compensation structures used by Ind
Page 166 and 167: Endnotes 1 By Annie Duflo, Anvesha
Page 168 and 169: 29 The main components of direct tr
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