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2011 Global Microcredit Summit Commissioned Workshop Paper
November 14-17, 2011 – Valladolid, Spain
The Debate on Outreach &
Impact: What do we know and
How do we know it?
Written by:
David S. Gibbons
Founder and Chairman
CASHPOR Micro Credit
28 June 2011
2
TABLE OF CONTENTS
Abstract 3
I: What is Known about the Social Impact of Microfinance? 4
II: The Academics 5
III: What do the Clients Say? 6
IV: Academics vs. Clients 8
V: A Compromise 14
3
The Debate on Outreach & Impact:
What do we know and How do we know it?
Abstract: Academics versus the Poor
This paper begins with a summary of what we know, based on Kathleen Odell’s recent
paper, "Measuring the Impact of Microfinance: Taking Another Look"; but disagrees with her
on the importance of RCT (Randomized Controlled Trial) studies. Similarly, the arguments and
findings in David Roodman’s Microfinance Open Book blog, are dismissed as being based on
the wrong question, too few in number and too short in time span. The research question
underlying the RCT studies is, “Do women who have continued access to microfinance have
significantly higher household incomes than similar women who don’t have such access?”. It is
the wrong question because, even a little reflection suggests that it cannot be the answer for all
poor, certainly not for those too ill or handicapped to work, and probably not for those with no
entrepreneurial ability. However, it may be an important path out of poverty for the women that
choose to borrow, and can succeed in their investments. The right question to ask, therefore, is,
“Is continued borrowing of microfinance, for say at least 5 years because the loans are small,
strongly and positively associated statistically with being no longer poor?”. Given the difficulty,
likely high costs and delay of being able to attribute reduction of poverty to microfinance, given
the high degrees of satisfaction expressed by MFI borrowers in sample surveys, given their near
perfect repayment rates, and given the rapid spread of microfinance for the poor all over the
world, we can be satisfied with a strong and positive correlation between continued borrowing
of microfinance and being no longer poor, as corroborating evidence of the desired social
impact..
The Progress Out of Poverty Index (PPI) is a simple, cost-effective way of measuring the
likelihood a person is poor, in terms of household expenditure. To get better coverage of the
other important dimensions of poverty, questions on health, school enrollment and the meeting of
family and social obligations can be added. As the MFIs that account for most of the outreach of
microfinance to the poor around the world are financially-sustainable organizations, public
money no longer plays an important role in their financing, and governments do not need to be
concerned about their social impact. Let the poor decide on their effectiveness, not the
academics or donors.
4
I
What is Known about the Social Impact of Microfinance?
Kathleen Odell in her recent paper, “Measuring the Impact of Microfinance”, summarizes
that although there have been some important recent studies, our understanding of the impact of
microfinance, which varies widely in content and coverage all over the world, is still limited to
what has been found for the few programs that have been studied carefully.
Given this extreme heterogeneity, one of the greatest errors
that researchers can make is to over-interpret the empirical
results that are available to us, since each study necessarily
applies only to a very specific context. Rather, keeping both
the general and the specific questions in mind, each impact
study must be interpreted as a small piece of a growing body
of knowledge about how microfinance , in all its forms,
functions in the world and how it affects the lives of the poor1
Recent, Important Studies and their Main Findings
Work by Bret Coleman (2006) of the Asian Devlopment
Bank found that for two microlending programs in north-
East Thailand, the services were more likely to reach
relatively wealthy borrowers than the target group of
the „poorest of the poor‟. In a related paper, Toshio Kondo
(2007) of the Asian Development Bank uses Coleman‟s
methodology to study a microfinance operation aimed at
the poorest 30% of the rural population in the Philippines.
Similar to Coleman, Kondo finds that the borrowers in the
Program are actually relatively wealthy. …. These studies
raise important questions about whether microfinance
products are reaching their intended recipients. …. Research
in Thailand by Joseph Kaboski and Robert
Townsend (2005) finds that MFIs, especially those that
targeted at women, promoted asset growth, consumption
smoothening, and occupational mobility, and reduced reliance
on moneylenders.2
1 Kathleen Odell (2010) “Measuring the Impact of Microfinance: taking another look”
Washington DC: The Grameen Foundation. 2 Odell (2010), pp.5-6.
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Odell’s Conclusion
The research on the impact of microfinance that has emerged
over the last five years offers some encouraging results. There is
evidence from a number of studies (using a variety of method-
ologies across different settings) suggesting that microfinance
is good for microbusinesses. This result is observed across different
microfinance services, including microcredit and microsavings
instruments. Based on the studies in this survey, the overall effect
on the incomes and poverty rates of microfinance clients is less
clear, as are the effects of microfinance on measures of social
well-being, such as education, health and women‟s empowerment. 3
Additional randomized controlled trials on microfinance and poverty (RCTs) are underway in a
number of countries, according to Odell, and she says these, “… are eagerly anticipated by the
microfinance community.” Let‟s look a bit more closely at what is promised.
II
The Academics
In reviewing the literature on the impact of microcredit on poverty, economist David
Roodman cast aside nearly all as being inadequately designed because of one or more of the
following reasons:
1. The study doesn‟t include a credibly representative control group.
2. It does not control for third factors that may simultaneously affect credit and
household welfare.
3. It doesn‟t use credible instruments to purge reverse causality.
After applying his “quality filters”, Roodman found that the literature shrunk drastically.4
Roodman argues that only randomized controlled trials (RCTs) can separate all
confounding factors (by controlling for them as in laboratory tests), to reveal whether or not
micro credit on average increases the incomes of the poor. From the RCTs done so far, he
concludes,
3 Odell (2010), p.6. 4 David Roodman (2009) Microfinance Open Book Blog. http//:blogs.cdev.org/open.book/,
Chapter 6, p.20.
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The benefit of cash lending in South Africa shines through in Karlan and Zinman's data
for the not so poor people who hold jobs. Where the average benefits of microcredit for
poorer people without much access to steady employment are as clear cut, they too
should shine through in RCT. Until that happens prudence calls for skepticism of any
claims of the systematic transformative power of microfinance. And until researchers
understand better how many are made worse off by microcredit, we cannot be sanguine
about the ethics of the intervention.5
III What do the Clients say?
In the second Impact Survey done in collaboration with ABN AMRO Bank (now Royal Bank of
Scotland) in December 2008, a random sample of CASHPOR‟s Mature Clients (those who had
repaid at least 4 loans), was asked, “How much, if any, have you benefitted from CASHPOR‟s
microcredit: None, Some, or A Lot?” Their answers are tabulated below:
How much, if any, has your family benefitted
from CASHPOR‟s micro credit?
Number %
None 26 8
Some 188 59
A Lot 106 33
Total 320 320
Nearly all, 92% said their family had received some benefit from CASHPOR‟s micro credit, and
one out of three, said they had got a lot of benefit.6
In an independent Social Rating in the last quarter of 2010, a random sample of
CASHPOR clients gave the following feedback, concerning changes that they and their
household had experience while borrowing from it7:
5 David Roodman (2009) Microfinance Open Book Blog, Conclusion to Chapter 6. Cited with
permission. http//:blogs.cdev.org/open.book/ 6 Unpublished survey results. 7 M-Cril (2010) Social Rating of CASHPOR Micro Credit. The overall rating that CMC received was
alpha with a positive outlook, for clarity of social mission to which systems were aligned and for
social responsibility to clients.
7
Overall, 92% of clients were satisfied with the services provided by CASHPOR Micro Credit,
exactly the same percentage that said their families had received at least some benefit from
CASHPOR‟s micro credit in 2008.
In its annual Social Impact Survey in December 2009 and 2010, our Internal Audit Department
asked a random sample of clients, “Overall what is your opinion of CASHPOR? Four responses
were offered, and the answers are tabulated below:
Overall, what is your
opinion of CASHPOR?
December 2009
%
December 2010
%
Very Good 62 41
Good 36 58
Not So Good 1 1
Bad 0 0
Total 99 (n=147) 100 (n=197)
Generally, those saying “Very Good” in 2009, emphasized, timely loans, with lower interest than others
and easy (weekly) repayment, that had financed their livelihood activities and enabled them to come
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out of poverty. Of the two Mature Clients that said “Not so Good”, one said the rules were too strict,
and the other did not give any reason. The decline in the proportion of mature clients saying
“Very good” from 62% to 41% may be a result of our liquidity problems in the second half of
FY 2010-2011 because of which clients had to wait too long for their loans – about which they
complained when asked what they did not like about CASHPOR? Notice, however that 99% of
respondents still gave a positive response. From this it can be concluded that the clients
themselves did not feel that CASHPOR‟s loans were doing them any harm.
IV
Academics versus Clients
How to explain the vast differences between the findings of the RCTs that show no
average positive impact of micro credit on poverty and the opinions of CASHPOR‟s clients,
expressing positive impact to both independent studies and our Internal Audit Department?
The simple answer may be that not enough RCTs have been done on the impact of micro
credit on poverty for a long-enough time periods. Only three RCT studies of the impact of micro
credit on income are cited by Roodman, with only one of them carried out among the poor with
incomes of less than US$2/capita/day (purchasing power parity).8 It did not find any significant
difference in total household expenditure per adult equivalent (a measure of poverty), between
treatment and comparison households.9 The study received wide publicity in the world press, and
raised serious doubts about the positive social impact of microfinance.10
The Miracle of Microfinance?
The study was carried out Hyderabad, India. Out of 104 neighborhoods, Spandana (an
MFI) established branches in 52, but not in the others. Impact data were collected in a sample
survey 15 to 18 months after the Spandana branch opening in each area. Although access to
microfinance was spreading rapidly throughout Hyderabad during the study period, the
probability of receiving an MFI loan in the areas covered by Spandana Branches was higher at
27%, than in those neighborhoods without Spandana branches, where it was 18.7%. This
suggests that establishing a Spandana Branch had an impact on borrowing in such
neighborhoods.11
8 Abhijit Banerjee et al (2009) “The Miracle of Microfinance? Evidence from a Randomized Evaluation”. Massachusetts Institute of technology Working Paper. 9 Abhijit Bannerjee and Others (2009), p.13. 10 Odell (2010)p.6. 11 Abhijit Bannerjee and Others (2009)
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No statistically significant differences were found, however, between sampled
households in the areas with Spandana branches ( those it was intended to treat – ITT) and those
without on a standard measure related to poverty (total household income per adult equivalent),
nor on the broader human development measures (education, health, women empowerment).
As the loans at Spandana (the MFI studied in India), are small, averaging around US$170
and have a tenor of one-year12
, however, they could not really be expected to make much, if any,
impact on household income during that short period of time. Moreover, as the authors
themselves point out, the overall level of borrowing was not very high, and not confined to the
treatment area.13
It is not surprising at all, therefore, that there were no significant differences
between the treatment and comparison areas on the broader human development measures.
Strong and statistically significant differences in the expected direction were found,
however, for households that already had a small business and those that had a high propensity to
start a business. In the words of the authors,
These findings suggest that microcredit does have important effects on business outcomes and the composition of household expenditure. Moreover, these effects differ for different households, in a way consistent with the fact that a household wishing to start a new business must pay a fixed cost to do so. Existing business owners appear to use microcredit to expand their businesses: durables spending (i.e. investment) and business profits increase. Among households who did not own a business when the program began, those households with low predicted propensity to start a business do not increase durables spending, but do increase nondurable (e.g. food) consumption, consistent with using microcredit to pay down more expensive debt or borrow against future income. Those households with high predicted propensity to start a business, on the other hand, reduce nondurable spending, and in particular appear to cut back on .temptation goods, such as alcohol, tobacco, lottery tickets and snacks eaten outside the home, presumably in order to finance an even bigger initial investment than could be paid for with just the loan.14 This will come as no surprise to microfinance practitioners who know that most of their
clients (the treated) understand that they must invest as much as they can of their loan money in
their businesses, if they are to benefit from them and be able to repay. Moreover, it is likely that
the greater investments in small businesses in the treatment area amongst entrepreneurial
households will result eventually in higher profits, as they have already for the household with
pre-existing small businesses. It was premature for the authors to expect significant differences
on poverty and the broader human development efforts.
12 Sa-Dhan (2009) Bharat Microfinance Report: Quick data 2009 New Delhi: Sa-Dhan. P.122 13 Banerjee and Others (2009), p.8. 14 Abhijit Banerjee and Others (2009) The Miracle of Microfinance? Evidence from a
randomized evaluation. MIT Working Paper, pp. 20 & 21.
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In CASHPOR‟s experience, at least 5 loans over a period of at least 4 years are likely to
be necessary to show substantial impact on poverty. Moreover, the definition of poverty used in
the study has to be broad-enough to include all its main dimensions: income, expenditures to
cover food deficits, social and family obligations like health, education of children, funerals,
marriage of daughters, natural disasters of droughts and flood. The RCT at Spandana included
the impact on income, expenditure, health and school enrollment. However, it did not cover the
other important social and family obligations, such as funerals and marriage of daughters which
could wipe-out the economic impact of micro credit, especially for any given year. Of course,
these factors could be included in future RCT studies.
Another simple answer to the contradiction is what is called selection bias.15
Essentially
the women who get loans from MFIs have selected themselves in the sense that they wanted to
borrow. This introduces a bias because they may be significantly different, perhaps more
entrepreneurial or business-minded, than poor women who decide not to borrow from MFIs. The
positive response of women who are borrowing may be because they have got that opportunity.
It could be, however, that the women who borrow would have found some other economic
opportunity if credit was not available. To me this is academic and irrelevant, as the economic
opportunities available to poor women in the poorer countries are woefully inadequate.
Providing access to micro credit on reasonable terms creates economic opportunities where they
are desperately needed. True, not all women succeed with micro credit, but enough do to make
significant impact on their vulnerability and poverty. Public money meant for poverty-reduction
is well-used in microfinance.16
A more complicated answer as to why there is such a gap between the economist and the
poor on the question of the impact of microfinance, is that the RCT studies ask the wrong
question. They want to know if women who have continued access to microfinance have higher
average household incomes than other women who are similar to them in all important ways,
except access to microfinance. The academics say they need to know this to determine whether
15 I’m grateful to David Roodman for convincing me to take-on this point. 16 Kathleen Odell in commenting on my draft says she thinks I will be challenged on this point. “The concern is selection bias. We can all agree that many borrowers are no longer poor. Good news, except we have no idea whether the outcome would have been different in the absence of the loans. So, from a statistical perspective, the correlation is interesting, but might only indicate an invisible causal variable correlated with both borrowing and getting out of poverty. Such as, being a good business-person.” But my main point is that good business women among the poor in the poorest countries like India, simply do not have adequate opportunity to do business because they lack the necessary capital. Microfinance makes it available to them, in most cases for the first time. I am happy with a reasonably strong, positive correlation because it fits with the impact I have seen on the ground over the years, all over Asia.
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the large amounts of public money spent on providing access to microfinance, was well spent.
The increasingly influential RCT exponents say that the RCTs are necessary to avoid harm to the
poor and the wastage of public money; and they claim that huge amounts of public money have
been spent on microfinance. What if there is no significant impact on poverty, despite what
millions of poor women who have access to microfinance say, and all that public money could
have been put to a better use?
It looks like I have missed something. As far as I know, not a lot of public money has
gone into microfinance in India, its biggest and fastest growing market. The Union Government
some time ago, created a Microfinance Development Fund in the National Bank for Agriculture
and Rural Development (NABARD), and then increased the funding subsequently, changing the
name of the Fund to Equity and Development Fund for Microfinance. Neither under the old or
new name, however, has the fund given anything but token support to MFIs. CASHPOR Micro
Credit (CMC), for example, has received INR 40 million from the Fund, INR 10 million in
capital support and INR 30 million in revolving finance, representing respectively 2.8% of our
total capital and 1.2% of our total Portfolio. No other funds have been received from
government. The Small Industries Development Bank (SIDBI), has been active in bulk lending
to MFIs, but largely at commercial rates. Some foreign grants have reached Indian MFIs,
including CMC, but their amount and impact have been limited by the long delays and arbitrary
decision-making of the Ministry of Home Affairs under the Foreign Currency Regulation Act
(FCRA). Private equity investors, including foreign firms, have put large amounts of money into
the bigger MFIs in India in the past few years, without waiting for the results of the time-
consuming RCTs. As MFIs, their staff and clients already know the huge benefits of access to
microfinance for the poor in India, they too are not waiting for the results of the RCTs. Perhaps
only a few academics and donors are in the queue.17
As for the rest of the world, I don‟t know how much public money has gone into
microfinance, but I doubt it is any where near the billions of dollars claimed by David
Roodman.18
In any case, the nearly one thousand MFIs listed by MIX Market are all profitable.
Probably they have most of the outreach to the poor around the world. No doubt some have
received large amounts of public money, like did the Grameen Bank, BRAC and ASA in
17 In personal correspondence, Roodman has written, “On public funding for microfinance in India: The World Bank has lent $1 billion for the SHG program at concessional rates. It has lent more to SIDBI. Then there is all the money from Indian banks, spurred in part by the priority spending rules, and constituting a public policy-induced cross-subsidy.” It is only the lending by banks under the Priority Sector quotas that has been significant in India. But the loans to MFIs have been at Prime Lending rate+. I stick by my point that there has been very little public money for MFIs in India. In fact, shortage of funds, even at commercial rates, has plagued the sector from its beginning, and severely constrained its outreach to the poor. 18 Personal correspondence.
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Bangladesh in the early days, but none would appear to need it now.19
Not only is micro credit
probably the most cost-effective intervention to start large numbers of poor people on the
journey out of poverty, but also it does not need to be subsidized permanently, as the poor have
shown that they can pay the full costs of providing it to them.
From my observations over twenty-five years in microfinance all over Asia, varying
proportions of poor women in different countries have been able to benefit from having
continued access to microfinance, but not always in the form of increased incomes. In some
countries, fewer poor women are interested in microfinance than in others. My impression is that
the main factor at work here is the opportunity for employment for poor women in a particular
country. If it is good, then the demand for microfinance from poor women would be less. For
example, in Malaysia which is nearing middle-income status, poor women have sufficient better
wage employment opportunities than becoming domestic servants. So the demand among them
for microfinance is low. Most people, not only among the poor, do not want to be in debt most of
the time. If their wage employment provides an adequate level of living, they may not be
interested in borrowing for income-generation.
The big problem, of course, is that in the poorer countries in employment opportunities
for poor women at reasonable wages are woefully inadequate. Demand for microfinance among
poor women in these countries, like India, Nepal, Indonesia, Viet Nam and the Philippines, is
significantly higher, as it also appears to be in the poorer African and Latin American countries.
However, even in the poorer countries, continued access to microfinance for poor women may
not show even a high positive correlation (not to say causation) with average household income,
for many reasons. Most important of these is the vulnerability of the poor to shocks of various
kinds for which they have to divert precious cash that otherwise would have been invested in an
income-generating activity. Common among these shocks are seasonal food shortages, serious
illness of household members, social and family obligations like funerals, schooling of children,
marriage of daughters, and natural disasters like floods and droughts. The poor have little margin
or savings for managing these shocks which, therefore, usually result in declines in their
household incomes/surpluses. It is not surprising, therefore that impact studies may not find a
high, positive correlation between continued access to microfinance and higher average levels of
income among poor households, a large proportion of which will have been affected by such
shocks. If asked, however, how much if any they have benefitted from their access to
microfinance, they are likely to answer ”a lot” or at least “some” as compared to “not much” or
“none”, because it has helped them to handle the shocks.
19 In personal correspondence, Roodman has suggested that perhaps even 50% of the MFIs listed by MIX are unprofitable if adjustments are made for subsidies received. In a world in which even some of the biggest banks have had to be rescued with subsidies in recent years, this appears to be irrelevant.
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Another problem with RCTs, and one that probably will severely limit what they can tell
us about the impact of microfinance on poverty, is that they require the control group of women
not to have access to microfinance for as long as the experimental group is studied. This goes
against the very ethos of many microfinance practitioners who see their mission as giving access.
If according to CASHPOR‟s experience, at least 5 years is needed for a poor household to come
out of poverty through microcredit because the loans are so small, then the control group may
have to be deprived of access for 5 years! In India and other poor countries in which
microfinance outreach is growing fast through increased competition among MFI, that would not
be possible. In fact, the rapid growth of access to microfinance in Hyderabad almost undermined
the RCT research design at Spandana, as other MFIs began giving loans in the comparison areas
during the period of the study!20
Ultimately, as competition takes microfinance to the far corners
of even the poorest states, as has happened already in Bangladesh, RCTs would be of very
limited use.
A final point about RCTs: how could the complex lives of people living on less than
US$2 per person per day, with the vulnerabilities and severe challenges that entails21
, be
controlled in a laboratory-like experiment than can control at best for only a few variables? The
research of Collins & Others shows that poor people, with or without access to microcredit,
normally are involved in and manage a host of financial transactions over time. They may
borrow from a traditional money lender, then from an MFI to replace the loan with a cheaper
one; they may borrow from relatives at no interest or from shopkeepers at heavy but disguised
interest rates or from another MFI to repay an existing MFI loan; they may save with an
employer, friend or relative; and in-turn they may be holding the savings of a friend or relative;
and they may lend to friends and relatives, with or without interest, etc. In an interview with a
researcher, they may reveal none, some or all of these financial transactions. Most likely, they
may reveal some but not all, either due to forgetfulness or a desire for confidentiality or both. In
any case, the researcher probably will be left with incomplete data. Analysis based on such data
may not find statistically significant differences that actually exist or it may lead only to obvious
results or there may have to be so many qualifications on the findings that they would be useless
in the real, hard world of the poor. Despite this likelihood, the academic crusaders for RCT
studies are insisting that only their work can determine whether or not microfinance reduces
poverty. Such efforts at academic hegemony over activism must be resisted wherever they
appear.22
20 Banerjee and Others (2009) 21 Please see Rutherford S. (2000) The Poor and Their Money New Delhi: Oxford University Press; and Collins, D., Murduch, J., Rutherford, s., & Ruthven, O. (2009) Porfolios of the Poor: How the World’s Poor Live on $2 a Day Princeton, N.J.: Princeton University Press. 22 Please see the 4 Part blog by Jonathan Lewis on “Social Impact Evaluation: Useful? Utopian?”
at HuffPost Social News www.huffingtonpost.com/jonathan-lewis/socialimpactevaluation.
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V
A Compromise
It is good, therefore that we don‟t need RCTs to measure and monitor the impact of
microfinance on poverty. But we do need to ask the right question: “Is continued borrowing of
microcredit, say for at least 5 years, correlated strongly and positively with reduction in poverty
broadly defined?” Then we need a measure of impact on poverty that covers its main
dimensions, and is timely and cost-effective to implement.
The Progress Out of Poverty Index (PPI) is a start in the right direction. It has now been
constructed from national socio-economic surveys in a number of poor countries. In India, the
current version has 10 objective, easy-to-answer questions. The answers to each question are
weighted according to their correlation with levels of household expenditure as revealed in the
surveys.
Progress Out of Poverty Index for India23
1. How many people aged 0 to 17 in the household?
2. Principal occupation?
3. Quality of residence?
4. Primary fuel of cooking?
5. How many TVs?
6. Bicycle/scooter/motor bike?
7. Almirah/dressing table?
8. How many sewing machines?
9. How many pressure cookers/pressure pans?
10. How many electric fans?
From the weighted scores on each answer, a total PPI score for the household is computed. That
score is related to a likelihood of being poor, according to the various poverty-lines, both Indian
and international.
In December of 2008, the Royal Bank of Scotland, CMC‟s lead banker at the time,
carried-out a random sample survey of 320 Mature Clients of CASHPOR Micro Credit, i.e.,
those who had repaid at least 5 loans over at least the previous four years, using the PPI to
23 For more information, please see the website: www.progressoutofpovertyindex.com.
15
determine what proportion were no longer poor?24
The main finding was that 2 out of 3 of the
Mature Clients were no longer poor, according to the Indian National Poverty-Line.
Unfortunately, we did not have base-line data on PPI for the Mature Clients, as we were not
collecting it at the time they began borrowing from CASHPOR. However, it is well known that
CASHPOR puts a lot of effort into ensuring that it is working with the poorest, through our own
targeting process that includes the CASHPOR House Index. So we are confident that most of the
MC were below the Indian National Poverty-Line when they began to borrow from CASHPOR.
In case some were already above the INPL at that time, however, we also calculated the
proportion of MC who were above the International Poverty Line of US$1 per capita per day,
which turned out to be 50%.
In the same random sample survey questions on the other important dimensions of
poverty, namely food shortages, health problems of household members, school attendance of
children, and the meeting of important family and social obligations were asked. So to was the
subjective dimension of impact, that is to say how much, if any, the clients feel they have
benefitted from microfinance. The results were as reported earlier in this paper.
Now the PPI questions are being asked by CASHPOR at T1, when the clients first
borrow from us, and at the time of application for subsequent loans by existing borrowers so as
to complete our base-line data on poverty. Our Internal Audit Department has commenced
carrying out and Annual Social Impact Survey of a random sample of Mature Clients to up-date
our T2 data on poverty. Of course, we will have to be satisfied with correlation analysis between
progress out of poverty and the number of loans repaid to CASHPOR. A strong, positive
correlation between continued borrowing and being no longer poor, will be seen as being
consistent with the desired social impact. Given the other positive indicators that we already
have, i.e., the rapid spread of microfinance among the poor around the world, their amazingly
good repayment records, and the high client satisfaction that is common among them, we can be
satisfied with a high correlation as corroborating evidence of impact. If, on the other hand, the
correlation drops and/or the client satisfaction declines, then we would know there were serious
problems with the MFI, and that possibly it was causing harm to some of its clients.
It must be emphasized that microfinance is not the way out of poverty for everybody. In
CASHPOR‟s experience, only about 25% of clients borrow continuously for at least 5 years. A
smaller but unknown number may have borrowed at least 5 times, but over a longer period.
Probably some households who borrowed less than 5 times, also came out of poverty, either
because of CASHPOR‟s micro credit and/or due to other reasons, and did not need to borrow
further. Other clients will have benefitted somewhat from CASHPOR‟s micro credit, but stopped
24 Please see, Microfinance and Poverty Alleviation, an Impact Assessment Survey by RBS
Foundation India in association with CASHPOR Micro Credit, December 2008.
16
borrowing for some other reason, before taking 5 loans. Many BPL households may have
realized that microcredit is not their way out of poverty, but they may have been helped
somewhat by it. Others may have not been helped at all, and some of them may have fallen into a
debt trap, especially in light of the increasingly fierce competition among MFIs in our region.
But wait: whoever thought that a few small loans could bring people out of poverty? That
continued access to microcredit is strongly associated with being no longer poor is quite
amazing, really! Considering that tens of millions of household live on less than US2 per capita
per day (ppp), by managing their cash flows expertly25
, periodic lump sums in the form of micro
credit can only help them to meet their needs and obligations. That they repay so faithfully
clearly indicates that they appreciate the access.
25 Collins, D. and Others (2009) Portfolios of the Poor.