The miracle of microfinance? Evidence from a randomized evaluation

This paper reports results from the randomized evaluation of a group-lending microcredit pro-gram in Hyderabad, India. A lender worked in 52 randomly selected neighborhoods, leading to an 8.4 percentage point increase in takeup of microcredit. Small business investment and profits of pre-existing businesses increased, but consumption did not significantly increase. Durable goods expenditure increased, while “temptation goods ” expenditure declined. We found no significant changes in health, education, or women’s empowerment. Two years later, after control areas had gained access to microcredit but households in treatment area had borrowed for longer and in larger amounts, very few significant differences persist. JEL codes: O16, G21, D21 ∗This paper updates and supersedes the 2010 version, which reported results using one wave of endline surveys. Fund-ing for the first wave of the survey was provided by The Vanguard Charitable Endowment Program and ICICI bank. Funding for the second wave was provided by Spandana and J-PAL. This draft was not reviewed by the The Vanguard Charitable Endowment Program, ICICI Bank, or Spandana. The Centre for Micro Finance at the Institute for Financial Management Research (IFMR) (Chennai, India) set up and organized the experiment and the data collection, and made the anonymized data available first to the research team, and then publicly. At the time, IFMR did not have an IRB. Data analysis and on-going data collection have received IRB approval from MIT COUHES (1203004973) and Northwestern University (STU00063636). Aparna Dasika and Angela Ambroz provided excellent assistance in Hyderabad. Adie Angrist