Santosh Kumar

Faculty Mentor: Santosh Kumar, Assistant Professor
Department Economics & International Business

Student Team Member: Madison Becker

Partial funding provided by the College of Business Administration Dean’s Office

Faculty Report

Inclusive Growth through Microfinance and Entrepreneurial Training: In 2011 about 2 billion people lived on less than $2 per day. In traditional economic models, lack of access to financial resources has been identified as one of the important causes of poverty and underdevelopment. The idea of microfinance was proposed by the 2006 Nobel Peace Prize winner Muhammad Yunus in order to improve the financial inclusion of poor and disadvantage people. Yunus set up the Grameen Bank in Bangladesh to improve the availability of financial services to the poor and under-resourced households. 

Given the importance of microfinance in the design of poverty alleviation policy, we started a microfinance project in Tamil Nadu, one of the southern states in India. We formed Self Help Group (SHG) of women in 150 villages and provided them financial capital and entrepreneurial training to start a business in her village. We also collected data from other 150 villages that formed the control for our analysis. The proposed randomized nature of research design will let us evaluate the causal effect of microfinance on poverty and women empowerment.

The EURECA-FAST grant provided us the support to engage an undergraduate student, Madison Becker, to work on this project during the summer of 2014 and also provided summer salary support to the faculty mentor Dr. Santosh Kumar. During the summer, Madison was actively involved in the project and she received training on how to conduct a high quality literature review on microfinance. Finding relevant journal articles is a skillset not frequently found among our students. Madison found 10 journal articles totaling over 300 pages and she summarized the main findings of each of these papers. After conducting literature review, Madison was trained in designing socio-economic household questionnaire and data analysis. Mentoring Madison on how to analyze high-frequency individual-level data on statistical software STATA was a hallmark of this project; she analyzed the baseline data to understand the characteristics of the sampled women and also analyzed the balance between the treated and control groups to ensure that there is no selection bias. Below are some of the important findings:

• The majority of the sampled women are in debt; 85% of households had a loan at the time of the survey.
• The primary source of livelihood in the study districts is agriculture and approximately 83% of households are engaged in agriculture related business activities.
• 30% of the households responded that business training is very important for business growth thus underscoring the importance of the entrepreneurial training built into our project.
• Distribution of income is highly skewed. The difference between the average expenditure of the top and bottom 25% of income category is substantial (approximately 20%).
• The data from project monitoring revealed a disturbing trend regarding the loan take-up. After 2 years of project implementation, only 25% of women applied and took loan from our partner NGO. After further analysis we found that women preferred loans from government formal banking sector rather than from private NGO.
• Finally, results indicate that the randomization was successful. Results from regression analysis show that treatment and control villages do not differ in their observed characteristics i.e. literacy rate, population business per capita, expenditure per capita and mean outstanding debt. We thus accept our null hypothesis that the difference between treatment and control is statistically insignificant.

The project is ongoing and our research team is currently running an information campaign to increase the uptake of loan and we plan to conduct field work in mid-2015 (follow-up survey) to estimate the causal impact of microfinance institutions on poverty and women empowerment in India.