Food Security Act

UPA II after implementing NREGA and RTI takes on a new flagship programme. And theres been alot of print on the newly proposed Food Security Act recently.

The scheme proposes to provide BPL families with 25kgs of grain per month at Rs. 3 per kg.

While the implementation arrangements for the scheme are yet to be publicized, some points -

1. Targeting. Anytime someone hears BPL, the targeting issue comes up. Either revise the lists and account for central control, or come up with a new criteria (though this has been tried before and proven somewhat problematic).

2. The delivery problem. As is the core issue in many central schemes, the money does not reach beneficiaries. More importantly, there is no noticeable effect on outcomes.

3. There are already existing food security schemes. For example, Antodaya Anna Yojana provides grain at Rs. 2 per kg. Are there plans for the streamlining or elimination of this scheme? Additionally ration cards provide existing above poverty line families at heavily subsidized prices. In the past there have been several large scale food-for-work or food security schemes, which have had little impact. It is worth analyzing how this Act will differ from previous and current programmes.

Itll be interesting to see what the details are.

Ashok Gulati of IFPRI has a nice op-ed in the Mint.
In a 2005 evaluation of the PDS schemes, the planning commission extimates 58% of food did not reach BPL famililes.

Another Podcast is Up

We are proud to announce the release of another CMF podcast. In this one, Dan Kopf interviews yours truly about NREGA. You can all our podcasts here.

Quasi-Experimental Designs and Quasi-Valid Results

Performing a randomized evaluation of a social program can be a real pain. In fact, randomized evaluations are probably the worst method for evaluating the impact of a social program out there – except for all the other methods available.

The problem with the other methods, in the case of microfinance and many other programs where there are likely to be a lot of unobserved differences between participants and non-participants, is that no matter how sophisticated the econometrics used it is extremely difficult to account for these unobserved differences. In addition, “publication bias” (the bias of journals to only publish papers with interesting, as yet unseen, results) and the strong public demand for positive results can lead to systematic bias in what ends up in the public domain.

Perhaps the most famous example of a non-randomized impact evaluation of microfinance is Pitt and Khandker’s evaluation of the microfinance programs of BRAC, Grameen Bank, and BRDB. Pitt and Khandker used the rules for who can be a client of these institutions as a sort of technique for controlling for the unobservable differences between clients and non-clients and found that the extension of microfinance had a significant positive on households (and more so in the case that the loan was offered to a woman).

In a new paper, David Roodman and Jonathan Morduch find that the Pitt and Khandkher results don’t hold up to scrutiny. Not only did their specification tests reveal that the methodology used by Pitt and Khandker is likely faulty, but they were unable to even replicate the key result of the paper using the original methodology of the authors. Roodman and Morduch take pains to say that they don’t claim that microfinance has no impact on poverty – only that the Pitt and Khandker research provides no evidence that it does.

NREGA - Analysis of Payment Method

An important dimension of prospective research in NREGA is analysis of the payment method through with NREGA wages have been disbursed. In early 2008, amidst concerns that delivery of NREGA wages via Gram Panchayats and other less formal methods was leading to corruption in the scheme, the Ministry of Rural Development mandated that all NREGA wages be delivered through either a bank account or post office account. In the table below, we display the progress of each state in achieving this objective set down by the central government.

(click on the graphs to see expanded versions)

Despite the common perception that most NREGA wages are currently being routed through bank accounts, the graphs below show that progress towards this goal has been shoddy at best.

Overall, only 43% of the total payments have been disbursed through the sources other than bank and post-offices. Interestingly, in many cases compliance of states in routing NREGA wages via formal accounts seems to bear little relation to the levels of financial inclusion of the state: for example, UP in which a low share of the population holds a bank account has performed relatively well on this metric while states such as Tamil Nadu and Maharashtra, with much high rates of existing financial inclusion, have performed abysmally.

Note: Source for all data- http://nrega.nic.in : Ministry of Rural Development, Govt. of India (official website)

NREGA - A Snapshot

One of the most frustrating aspects of doing development research in India is the lack of aggregated state by state information on the implementation of centrally sponsored schemes. So that the rest of you don't have to go through this process, we have gathered updated state by state stats on how NREGA is performing throughout the country. Our analysis is pretty much a replication of Dreze and Oldiges' excellent updates on the scheme published in previous years.

Implementation: All India

The National Rural Employment Guarantee Act (NREGA) has attained extraordinary scale over the past few years since its inception. In 2008-09 the programme generated 261 crore person-days of employment compared to 144 in the previous fiscal year. Employment in NREGA surged in regard to person-days per rural household, per job card and per household employed in NREGA. The programme has scaled up enormously in terms of employment-days generated and outlays, which almost doubled to 27000 crore from 15000 crore in previous fiscal year. As compared to last fiscal NREGA has added 285 more districts to its roster.

(click on table to see an expanded version)

Delving more into the data, we found some interesting changes. Share of wages in total expenditure has declined from 68 to 66.89 percent and also the wage cost per-person(average expenditure on wage payments per person) has declined from Rs.75 to Rs. 67. Increasing material requirement and increasing prices may be one possible reason for this change. The share of ST’s (scheduled caste) in employment has continued with its falling trend as of last year. This is likely due to the phased roll out strategy for NREGA which targeted poorer districts with relatively larger shares of ST populations for the first and second phases of roll out.

State-Specific Pattern

As in the previous fiscal year Rajasthan, Madhya Pradesh, Chattisgarh and few north eastern states have been the leaders in terms of employment generation (person-days per rural household). States like Uttar Pradesh, Bihar and Maharashtra which have been falling back on a comparative performance scale (employment-days generated) have had minor improvements in terms of employment generation. Interestingly, the “leader” states (Rajasthan, Madhya Pradesh, Chattisgarh) have had significant decline in their employment generations in terms of person days per rural household.

(click on table to see an expanded version)

Continuing with their abysmally low contribution states like Jharkhand, Tamil Nadu, Haryana, Orissa, West Bengal, Punjab and Gujarat have seen a decline in their employment generation figures, in comparison with last year. A reason apart from the conventional argument of less political willingness in these states is that increased vigilance has suppressed the tendency of fudging the employment figures.

Participation of women in NREGA has increased to around 48% from last year’s figure of 44%. Interestingly, states like Himanchal Pradesh and Bihar have increased their share of women dramatically and are closer to the threshold level of 33%.

Another aspect of state-specific comparisons is the changes in wage rates. Owing to an increase in minimum wage rates, states like Rajasthan, Madhya Pradesh, Chattisgarh, Jharkhand, Himanchal Pradesh, Orissa, Maharashtra have been observed to have dramatic increases in their average wages (Rs./Day). There was a simultaneous increase in productivity linked to improved work site management which caused a surge in wages. As an exception, Tamil Nadu has had a significant decline in its average wages as compared to last fiscal year.

Grains by the gyarah - The Mystery of the Indian Bazaar

The recent CMF “dosas-by-the-dozen” paper, which has been the subject of much discussion in this blog, suggests that present-bias among microentrepreneurs breeds risk-aversion in enterprise choice that effectively homogenizes the type of enterprises that they pursue. Emmerichda in his earlier post suggests that this might explain why one sees clusters of STD phone booths, among other things. That reminded me of some persistent questions I’ve had regarding the spatial organization of Indian economic activity, which I’ll try to discuss in this post.

Anyone who has lived in any city in India is aware of the tendency for similar businesses to exist in clusters, rather than being evenly distributed geographically. For durable goods and non-generic services where there is variation in the quality of whatever is being provided, this seems economically logical, especially when the consumer population does not have easy access to price information for a variety of providers. This is especially true in urban india, where most people don’t have their own transportation, and even if they do its generally a pain to go from place to place, and also where the concept of advertising on the basis of price seems essentially nonexistent. Under these circumstances, there definitely seems to be an efficiency gain to the concept of a bazaar, where competition is apparent and consumers have access to a wider variety of choices. Consumers can avoid getting screwed over by monopoly providers because they have almost immediate access to all the other providers – a spatial way of ensuring that there is direct competition. This logic applies especially in the case of more expensive goods and services, particularly ones that are not necessarily perfect substitutes (ie appliances, used cars, prostitutes, furniture, etc).

Then there is another category of goods that are cheap and also perfect substitutes, but still generally appear in clusters of shops. I would put pan, cigarettes, chai, omelettes, phone calls, juice, and similar “instant-gratification” goods into this category. For these shops as well, there is a compelling reason for them to exist in clusters. The reason is that consumers themselves are present-biased regarding consumption of these goods. For example, if one pan shop always gets a glut of customers at a certain time of day, that it makes sense for another to open immediately adjacent – since consumers are present-biased and want their paan as quickly as possible, business will spread evenly between the two, and customers will get their fix twice as fast. The same is true for STD phone booths, street-food stalls, and similar goods and services. The fact that barriers to entry and fixed costs of operating these types of shops are generally minimal also suggests that it makes sense for them to exist in clusters in order to satisfy consumer’s desire for instant gratification. Higher costs of entry for providers and lower consumer preference for immediate service would intuitively reduce the tendency of these businesses to appear in clusters.

But for certain other types of goods and services, the idea of a bazaar seems downright silly. For example, I can’t think of any compelling reason why a salt bazaar or rice bazaar or dal bazaar should exist. For these types of goods, the natural equilibrium would seem to be for stores to be evenly distributed geographically to minimize consumers travel costs. Since these are basic, cheap, nondurable goods that every household consumes, the stores selling them would presumably be abundant enough to ensure price competition even when they aren’t located right next to one another. The presence of half a million ration shops across the country providing these goods at a subsidized rate for most consumers would also seem to ensure that no one shop can ever be a monopoly provider of salt, rice, etc in a region.

Yet this equilibrium doesn't really seem to exist in reality. There are salt, rice, grain, chili, and similar bazaars in every town and city I’ve been to in India. Certainly almost all of these basic staple goods are available in local kirana stores, but there is no price convergence – they are never as cheap in the kirana as in the bazaar, and the price differential is much too great to be explained simply by the cost of transporting goods to the kiranas.

Anyone who can offer a compelling explanation for this gets a kilo of sugar from me.

Innovating or undermining the group liability model?

Even as the world hails joint liability group model as a simple yet effective tool to combat information asymmetry problems, several instances of MFI’s collecting “savings” compulsorily from their clients are coming to light. The rationale given by NGOs (apparently, there are quite a few who follow this practice) is that the poor do not have avenues for saving nor the ability. By taking compulsory savings they help clients, even though it is illegal for NGOs to take public deposits. In reality, and this is substantiated by some people who are clients of various MFIs, these savings are used as collateral. When a client is unable to make repayments, the MFI makes good the amount from the savings.

This is typical of MFIs that have evolved from or are extensions of NGOs. NGOs typically operate on a grants-basis and communities that have been recipients of such aid find it difficult to differentiate the operations of a grants-based organisation from those of a commercial one. Many organisations offer microfinance services through an MFI arm while the rest of the organisation remains not-for-profit and collects collateral in the guise of savings, membership fees, etc.

The hype surrounding microfinance has made the sector attractive to all sorts of NGOs,particularly those not in the microfinance sector, and the absence of regulation or clarity of legal forms has allowed NGOs to assume several functional forms, often with conflicting interests and missions. There has also been some anecdotal evidence of groups functioning on the basis of collateral even as MFIs do not, raising potential quesitons on the efficacy of self-enforcing mechanisms and group-liability.

Microcredit : A healthy addiction ?

Whether it was Mohammed Yunus and Grameen Bank's Nobel Peace Prize victory , the UN dedicating an entire year to microcredit or even just the irresistible dual bottom line of sustainability combined with impacting economic development, it is pretty evident that development economists, researchers and students around the world have taken a sort of obsession to microfinance ( myself included ! ) . As long as we keep in mind that microcredit is neither the entire solution nor a permanent one, I think this addiction is great.

There is an addiction that worries me though - that of microfinance clients to their loans. During a field visit to a group meeting of SMILE in the outskirts of Chennai, we asked women who had been clients for three to five years, how much longer they expected to take out loans for . The unanimous reply was : " For however much longer they will give it to me ". I was shocked by the response for it went against the commonly perceived strict purpose of microcredit: to give the poor, the financially excluded that little push that would bring out the entrepreneurs in them which, in turn, would help them help themselves.

That these clients show little desire of graduating out of borrowing and have adopted microcredit for the long-term seems acceptable to me as long as their income and thus their livelihood improves with each loan cycle. After all, there is plenty of room for improvement as far as the typical lifestyles of these clients are concerned and it is only natural that they want to advance from one level to the next with the help of a continuous supply of microcredit. However, in the case of the women we interacted with, this wasn't the case at all.

Most of the women engaged in one of few common businesses as a source of supplementary income for their families : supplying breakfast/lunch to offices, flower selling, sari selling and tailoring of sari blouses. Their customers were mostly the other members in the group and the other households within their neighbourhood. Assuming that most of the money they borrowed went towards financing their businesses, which they claimed it did, they spent the loan on working capital - ingredients, flowers, cloth. Most of the revenue went towards weekly repayment of loans ( plus accrued interest ) . The remainder, if any, was spent to narrow the gap between household consumption needs and what their husbands' income could buy.

Thus, even after years of starting their respective micro enterprises, these women were not self-financing the working capital for their businesses. Microcredit may be sustainable for the institutions that provide it, but I wonder if it promotes the establishment of sustainable businesses, especially given that the loan sizes are usually too small for them to tap into possible economies of scale. Factor in the multiple borrowing phenomena in areas with a saturated supply of microcredit, and loans take on the purpose of repaying other existing loans. The question then is whether microcredit had succeeded in uplifting these women from one cycle of poverty with no access to financial services only to entrap them in another cycle of a small business, slightly better income and continuous debt, in which they would be stuck for the rest of their lives ?

What I realized in attempting to answer this question is that the above cannot be the whole picture - it doesn't seem to make sense that the women would so enthusiastically engage in borrowing and repaying if it merely helped them keep their businesses running. Looking for more explanations, I came across two ( and am looking for more ! ) :

The first is that borrowers cannot self-finance their businesses after initial loan cycles simply because they do not save enough. Interestingly, this is not because they do not earn enough to be able to save enough, but because there is a lack of access to savings products ( as illustrated by this article : http://www.philanthropyaction.com/nc/whats_so_hard_about_saving/ ) . Despite the high return to saving, in the absence of good savings products, borrowers fail to save because they spend on emergency situations, which once again they are not prepared for due to the lack of insurance products. Perhaps these shocks are even anticipated and borrowing gives them the opportunity to reserve their savings for such circumstances.

The second, a perspective I was introduced to by someone at Hand-in-Hand, is that the positive externalities from being part of a group - including building a sense of community and empowerment and even expectations of support from members in times of need ( financial or otherwise ), outweigh the negative impact that the financially poor decision of being in a debt-cycle without enterprise expansion has. Moreover, if the charm of microfinance lies is in the benefits of group mechanism, maybe the way out of these cycles is to nurture the growth of micro enterprises by tapping into these very groups ; for instance, by encouraging more joint businesses.

A Mixed Bag

Following hot on the heels of a bunch of results from CMF's long-term study of the impact of microfinance in Hyderabad's slums (covered by my colleagues here and here, and published here and here [both PDFs]), the Center for Global Development recently released a study by David Roodman and Jonathan Morduch re-evaluating non-experimental studies on the impact of microcredit in our neighbours to the East. They find that,

...none convincingly rules out reverse causation. A positive association between microcredit and household spending, for example, may merely indicate that richer families borrow more. With these studies in doubt, solid academic evidence that microcredit reduces poverty is even scarcer than previously understood.

The mounting evidence on the performance of microfinance is beginning to question microfinance as a development mantra. Stay tuned.

ps. Although Michael and Akhand did not talk about the second PDF I linked to that evaluates Spandana data (the paper is called "Dosas by the Dozen"), the author gives an interesting and original account of why micro-entrepreneurs start copy-cat businesses. He argues that the poor's significant time discounting (a desire to see returns from their business today instead of next month or year), results in entrepreneurial risk-aversion. Anyone who has walked down a street in a developing country and wondered just why a consumer would need twelve STD/ISD booths in a row should check out the paper.

Financing SMEs

Katie Hill of Acumen Fund highlights an interesting point regarding the lack of adequate and relevant financing options for SMEs in India:

"From there, we initiated conversations with a number of commercial banks and knew from the get-go that this would be tough—especially after one banker told me that they define “small businesses” as companies with revenues of R.50-150 crore (that is USD $10-100 million)! The commercial banks look at SMEs and see high transaction costs and high risk. Maybe I think about risk too much like a venture capitalist and not enough like a banker. So far, the Indian commercial banks that we talk to want a 100% guarantee, usually as company cash reserve or personal promoter guarantee. This may be the only option for getting commercial banks comfortable with the credit-worthiness of a company like GEWP. It is far from an ideal option. We have not given up on the mainstream banks. We will continue our current conversations and push for innovative thinking. "

There was a recent article ( I cannot recollect where) that hinted the role of micro-finance in robbing credit from the more "efficient" employment-generating SMEs in India. It was interesting to note this insight, especially in the light of the eternal debate on the relevance of micro-finance in alleviating poverty. My own view is that most Indian banks tend to follow a "lazy banking" model of business. Granted that the prudence and regulations have a place, but they have adopted a radical form of risk-aversiveness. The credit managers are hesitant to fund new-age business ideas, and definitely not without the guarantee of an asset that is 100% of the value of the asset. Moreover, most of this credit centers around one-time term loans that are expected to work as seed-funding for these enterprises. As Katie points out, working capital credit options are absent. I assume this is so owing to the higher degree of involvement required by the banker to understand the underlying cash flows of the business.

Since banks are mandated to maintain 40% of their total credit outlay for priority-sector lending (i.e. agricultural, rural, SME and micro-lending), most banks have now shifted to lending to MFIs at not-so-competitive rates, who in turn, transfer some of the high interest costs to the end-borrowers. Banks, themselves, are insulated from the risks of the business and so far, large-scale defaults by MFIs have been rare. It is also interesting to note that within the 40% target, there are no minimum targets for the SSI/SME sector itself. So, there might be merit in the argument that micro-finance is tending to replace credit to SMEs. The reason though, is not micro-finance itself, but the deep-rooted reluctance of Indian bankers and lenders to assume more risks.

Shout Out for MFInsights

Just a quick shout-out that one of my favorite microfinance publications, Microfinance Insights, is offering a free 1-year e-subscription.

Visit their website www.microfinanceinsights.com and find a free e-subscription banner on the top right corner of the homepage to sign up. (Click "Subscribe Now" tab.) Your subscription will start with the upcoming July/August 2009 issue. You will receive an e- copy of the magazine and our newsletter in your email inbox. This is valid until June 30th.

What is "Development"?

I just came across a blog post by Lant Prichett - who by the way was my thesis supervisor at the Kennedy school and is now the MPA/ID chair - who among other things, gives a pretty precise definition of development as rapid "modernization" giving examples of the West's development in the 19th century, Japan's Meiji Restoration and Korea's modernization in the 60's.

While the sharpness of the definition makes it an attractive choice, its implications and connotation can be problematic. Does this mean you cannot "develop" unless you "modernize" your country? What is modernization anyway? Is it urbanization? Is it about making your economy, polity, administration and society look like the West, Japan and to some extent Korea? I wonder what Bhutan's former king would have to say about this given his definition of development and the GNH concept!

In an attempt to test this logic on the ground, I started what I call my own little "social experiment" in which I asked a few colleagues the following questions, which I would like the readers of this blog to answer too (if you find it interesting at all).

1. What is your definition of development? (In no more than 3 lines)
2. What is your one-word description of development? Similar to Lant Prichett's "modernization"
3. If country X (any developing country you can relate to) is said to have achieved development Y years from now, what features of the country constitute your definition of a developed country?

Not surprisingly, nobody so far has mentioned the word "modernization" - maybe I am talking to a non-representative sample of development practitioners! I would be keen to hear what you have to say.

New Podcast: Weather Insurance - Does it work?

Wanted to quickly highlight our new CMF podcast, where my colleagues Dan Kopf and Nilesh Fernando discuss the concept behind, and on the ground realities of implementing, weather insurance.  Nilesh is overseeing an impact evaluation of SEWA's weather insurance product in Gujarat, and he and Dan do a great job of explaining how weather insurance differs from crop insurance, and some of the challenges in developing an effective weather insurance product.

A couple key takeaways, for me, included:

• Weather insurance reduces the incentive to lie about crop yield.  To receive a payout with crop insurance, a farmer needs to have (or seem to have) a bad crop yield.  With weather/rainfall insurance, rainfall levels are tracked at a district level, and cannot be manipulated by individual farmers.  
• Explaining weather insurance to farmers is difficult.  Loan officers need to be well-trained to understand the product they are selling, otherwise there can be a lot of misunderstandings.
• Type of rainfall (e.g., a huge storm), not only the total amount, alters rain's effect on crop yield.

Nilesh and Dan explain these nuances better than I can, so I'll stop now and once again give a link to their podcast, which is at the bottom of the linked page.  Feel free to also check out our other podcasts too . . .

  

Time and Money

Answer the following four questions and please assume that you have absolute trust in the person presenting the offer:

1) Would you prefer A) Rs 10 paid to you one month from today, or B) Rs 10 paid to you four months from today?

2) Would you prefer A) Rs 10 paid to you one month from today, or B) Rs 12 paid to you four months from today?

3) Would you prefer A) Rs 10 paid to you one month from today, or B) Rs 14 paid to you four months from today?

4) Would you prefer A) Rs 10 paid to you one month from today, or B) Rs 16 paid to you four months from today?

If you chose B for the first question, than you either believe you will be unemployed in four months, don’t believe in your self control or have a fetish for delayed gratification.

If you chose A for the first question but B for the second through fourth than you have made a sound decision based on your calculus of the interest rate of this offer.

If you chose A for the first and second question, but b for the third or fourth, you definitely want your money now, but you know you can’t turn down a deal that good.

If you chose A for all four questions than you might be hungry, untrusting, poor at math, or an addict. You also very well might be a microfinance customer who has a business that shows no prospect for growth. If you want to know why, read this.

MFIs in India: Is the next challenge scale or flexibility?

Earlier today, I was reading this article in the Stanford Progressive, which argues that for microfinance to better help the poor, microfinance institutions (MFIs) must become larger in order to allow them to overcome basic infrastructure problems (e.g., bad roads, poor legal systems, spread out markets).  This sentiment "of bigger is better" is a growing trend, as many argue that only with scale of credit (and institutions) will microfinance really reach poor households.

Scale of institutions may matter, but another more fundamental question that often is overlooked is whether MFIs' products are meeting the needs of their clients.  During meetings this week in Washington DC with organizations like the World Bank, CGAP and the Center for Global Development (CGDEV), people asked us (me and the executive director at CMF, Justin Oliver) what were the main upcoming challenges in Indian microfinance.  Justin would mention outreach in poorer states, but would really hone in on the fact that Indian MFIs typically offer very general and standardized products.  The 1st loan is often in the range of Rs 6,000-10,000 (USD $120-200), and is paid back weekly over one year.  The 2nd loan is typically about Rs 12,000 (USD $240) and the 3rd loan is about Rs 15,000 (USD $300), and repayment is done the same way with both of these cycles as was done with the 1st loan.  Even the most successful entrepreneurs would fall under this rigid structure, and would only be able to receive about Rs. 15,000 (USD $300) in their 3rd year of successful repayment.  If they need more capital, they will need to go to a moneylender or another MFI, regardless of their track record.  

I think MFIs in India should better tailor their microcredit products to their clients.  Some clients need larger loan amounts, a monthly infusion of cash, or daily  loans (e.g., auto-drivers that rent their autos at a daily rate).  It could be difficult to train loan officers on how these different loan products work, and which type of client may benefit from these differentiated products, but it's crucial that Indian microcredit becomes more flexible.  In my mind, more flexibility would benefit clients more than the growth in scale of the microcredit available today.

Any thoughts or examples of Indian MFIs who are developing more flexible products?  Do others agree or disagree with my argument?

MFIs beat Banks here

The borrowers do the good for MFIs. MFI borrowers tend to bounce back more quickly than commercial bank borrowers. Ultimate losses for MFIs thus tend to be more limited than for commercial banks. This is primarily due to the fact that MFI borrowers tend to be micro entrepreneurs or small family businesses operating in the informal sector, which are more flexible
in changing the profile of their economic activity. In addition, as consumers adjust to lower spending levels, there is often an increase in demand for these informal business services and products.

Well, an ongoing discussion at solution exchange micro-finance community mentioned an article (can be accessed here) mentioned the above fact. The fact regarding customers adjusting spending levels and increasing demands for small business products amazes me. This means, the guy who used to drink coffee at CCD has now shifted to the road-shop across the CCD now. Looks logical!!

ps - Microcredit - What's it good for?

I am excited with the sheer fact that results from first (to my knowledge) impact evaluation of micro-credit program of an MFI and one of the first few CMF projects are out.
While my colleague, Michael beat me to write post on the paper first, I would stress on few other important aspects and findings from the paper. The PSD blog and Michael's post accurately present the findings of the paper.

To me the interesting aspect was the predictions that author's model had. The baseline survey showed that 30% of spandana loans were used for starting a new business, 22% for adding stock to existing business, 30% to repay an existing loan and 15% to buy durable for household and 15% to smoothen consumption. This was important as it led to design a model of occupational choice (and here comes my favorite entrepreneurship). The model enviasge three kinds of households, one that is an entrepreneur, one that has entrepreneurial characteriscs and the one that doesn't, paper calls it propensity to start new business and no/low propensity to start a new business. The paper assume two scenarios - with MFI and without MFI. The predictions were -
1. household that have high propensity to start a business will pay the fixed costs to start the business. This means, given the loan this house will start a business activity. Results - consumption falls, investment increases - likely enterpreneurs
2. household with low propensity to start a business, if borrow would tend to increase consumption - not likely to become enterepreneurs
3. The third category, ones which already have business, borrow to increase business thus profits increase and so do consumption.

Thus, these three groups of households, will have different loan usages. The results in the paper are also summarized for the above three groups separately. That makes the paper an even more interesting read.

I know the big question now is, let us see what are charactersitics of people in first category. I list below characterics as described in the paper. However, I do feel this is such an important issue that even authors would like to explore more on this. The present characteristics doesn't capture a wholesome picture -
1. Literacy of women in family
2. presence of woman who doesnot work for a wage
3. number of prime aged woman
(ceratinly these women are available to start a new activity. cool)
4. Land ownership

All the four above positively predict the likelihood of a household starting a new business.
Since we already have posts on the analysis of results (like the one below this post), I would not present them here. However, to the issue of finding impact on health, education etc, I would say during these three years of study (2005 to 2008), there has been Government's constant foucs on education and health, especially with SSA and NRHM and various other schemes. And we can not discount the fact that Hyderabad is cosmo city now, I can safely assume hospitals and private schools have come up in areas surrounding the research slums. That ceratinly has huge impact on both treatment and control groups. And, I do agree that 18 months of intervention is a lesser to time to see changes in education and health.
If you do not feel like reading other posts and read the paper right away, download it here.