Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India. American Economic Review. 2013;103 (6) :2196-2226..
Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty.
Field E, Jayachandran S, Pande R, Rigol N. Friendship at Work: Can Peer Effects Catalyze Female Entrepreneurship? American Economic Journal: Public Policy. 2016;8 (2) :125-153.
Does the lack of peers contribute to the observed gender gap in entrepreneurial success? A random sample of customers of India’s largest women’s bank was offered two days of business counseling, and a random subsample was invited to attend with a friend. The intervention significantly increased participants’ business activity, but only if they were trained with a friend. Those trained with a friend were more likely to have taken out business loans, were less likely to be housewives, and reported increased business activity and higher household income, with stronger impacts among women subject to social norms that restrict female mobility.
Do Group Dynamics Influence Social Capital Gains Among Microfinance Clients? Evidence From a Randomized Experiment in Urban India. Journal of Policy Analysis and Management. 2014;33 (4) :932-949..
As an intrinsic part of the classic microfinance model, group meetings are intended to employ social capital to ensure timely repayment. Recent research suggests that more frequent meeting can, itself, increase social capital among first-time clients. Using randomized variation in group meeting frequency for 174 microfinance groups in India, we demonstrate that social capital gains associated with more frequent meeting continue to accrue across multiple lending cycles. However, these effects are reduced when group members differ in their borrowing history. In addition, clients who start with low levels of empowerment report higher social capital gains when matched with similar clients. We discuss how current microfinance policy debates overlook the creation of social capital, including through repayment meeting frequency, and we encourage regulators to undertake a holistic understanding of microfinance’s impacts.
Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design In The Field with Reshmaan Hussam and Benjamin Roth
One of the most difficult problems in development is that the cost of assessing credit risk for small businesses often makes giving loans unprofitable. In a field experiment in Maharashtra, India we asked 1,345 entrepreneurs to rank their peers on various metrics of business profitability and growth and entrepreneur characteristics. To assess the validity of these predictions we then randomly distributed cash grants of about USD100 to a third of these entrepreneurs. We find that information provided by community members is predictive of the marginal return to capital. We horserace the community rankings against a machine learning prediction and find that while the machine learning exercise is able to predict high-return entrepreneurs, community information continues to correctly predict 23% returns per month for the top entrepreneurs even after controlling the machine learning prediction. We use experimental variation in the design of surveys to demonstrate agency problems in obtaining community information when community members know the purpose of the information gathering exercise. We conclude by demonstrating how mechanism design can be used to address these agency problems; monetary incentives for accuracy, eliciting reports in public, and cross-reporting techniques motivated by implementation theory all significantly improve the accuracy of reports.
An Account of One’s Own: Can Targeting Benefits Payments Address Social Constraints to Female Labor Force Participation? with Erica Field, Rohini Pande, Natalia Rigol, and Charity Troyer Moore. October 2016.
Although emerging economies have enjoyed robust growth in recent years, in many cases female labor force participation has remained low, or even fallen. India, where women often face highly restrictive gender norms regarding work and mobility, is a particularly stark negative outlier. In collaboration with the state government of Madhya Pradesh, we experimentally varied whether women’s wages from India’s public workfare program were deposited into female-owned bank accounts versus an account owned by the male household head. The treatment increased women’s work, both in the program and in the private sector. This occurred despite no change in market wages. The treatment effects are concentrated among two groups of women: those who had not previously worked for the program and those whose husbands disapprove of women working. These results are at odds with a model of household behavior in which labor force participation decisions solely depend on wages and own-preference for leisure. Instead, we argue that they are consistent with a model in which gender norms limit women’s labor market engagement. Our results also suggest that policies that increase women’s control over household resources can encourage labor force participation in settings where male preferences constrain female employment.
Habit Formation and Rational Addiction: A Field Experiment in Handwashing with Reshmaan Hussam, Giovanni Reggiani, and Atonu Rabbani
Regular handwashing with soap is believed to have substantial impacts on child health in the developing world. Most handwashing campaigns have failed, however, to establish and maintain a regular practice of handwashing. Motivated by scholarship that suggests handwashing is habitual, we design, implement and analyze a randomized field experiment aimed to test the main predictions of the rational addiction model. To reliably measure handwashing, we develop and produce a novel soap dispenser, within which a time-stamped sensor is embedded. We randomize distribution of these soap dispensers as well as provision of monitoring (feedback reports) or monitoring and incentives for daily handwashing. Relative to a control arm in which households receive no dispenser, we find that all treatments generate substantial improvements in child health as measured by child weight and height. Our key test of rational addiction is implemented by informing a subset of households about a future boost in monitoring or incentives. We find that (1) both monitoring and incentives increase handwashing relative to receiving only a dispenser; (2) these effects persist after monitoring or incentives are removed; and (3) the anticipation of monitoring increases handwashing rates significantly, implying that individuals internalize the habitual nature of handwashing and accumulate habit stock accordingly. Our results are consistent with the key predictions of the rational addiction model, expanding its relevance to settings beyond what are usually considered `addictive’ behaviors.
Household Matters: Revisiting the Returns to Capital Among Female Micro-entrepreneurs with Arielle Bernhardt, Erica Field, and Rohini Pande
Several experiments find that easing credit constraints via cash or in-kind grants results in enterprise growth for male, but not female, micro-entrepreneurs (De Mel, McKenzie, and Woodruff, 2008). But female micro-entrepreneurs often belong to households with multiple enterprises. We provide experimental evidence from India that the unit of measurement matters when assessing enterprise returns: easing credit constraints for female micro-entrepreneurs does, in fact, raise household enterprise profits. However, profits of female-owned enterprises increase only in households with no other micro-entrepreneurs. When female microentrepreneurs are married to male micro-entrepreneurs, male-owned enterprises show large increases in profits. This demonstrates the importance of grounding empirical tests of the returns to capital among micro-entrepreneurs within the context of an Enterprise Household Model that accounts for all household income-generating activities.
Paying for the Truth: The Efficacy of Peer Prediction in the Field with Benjamin Roth
There is increasing consensus among development economists that community information is valuable for targeting, and that incentives for accuracy may be a vital part of elicitation. We make an empirical case for peer prediction– a class of mechanisms that overcome many practical difficulties traditional monetary incentives face. Peer prediction allows payments to be contemporaneous with the initial report, reducing surveying costs and eliminating the possibility that respondents don’t trust surveyors to return with remuneration. The primary tradeoff is that peer prediction is complicated to explain in practice, and incentive compatibility relies on assumptions that may not hold empirically.
We report results from a lab-in-the-field experiment in Maharshtra, India in which we compare peer prediction to a simple payment rule relying on ex-post accuracy. Farmers were asked questions about their neighbors and were told that their reports would be used to determine cash prizes. Both payment rules result in comparable improvement in accuracy. Importantly, by imposing structure on the data we also find evidence that one peer prediction mechanism is incentive compatible given empirically estimated subjective beliefs; respondents maximize their subjective expected utility by reporting truthfully. This bodes well for situations that require the repeated use of monetary incentives to promote accurate responses – the message that respondents can do no better than to tell the truth will be reinforced with repeated play. Given the broad applicability and the ease of implementation of peer prediction, we hope that this experiment will serve as a catalyst to verify its usefulness in other contexts.
Work in Progress
Building Transparency and Trust in the Financial System with Voice Notifications (with Erica Field, Rohini Pande, Simone Schaner, and Charity Troyer Moore). Pilot study.
Status: Pilot in the field.
The Government of India’s ambitious Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme has opened over 226 million new bank accounts since its inception in August 2014, with the aim of drawing India’s unbanked rural poor into the formal financial system. Although this is an impressive achievement, many of these accounts are dormant, or are only used to receive government benefits. Thus, significant barriers to financial inclusion remain: Low financial literacy rates, especially among women, result in discomfort with new technologies used by last-mile banking kiosks, such as fingerprint readers. Moreover, banking kiosk operators often hold an informational monopoly on account details, as illiterate individuals cannot read transaction receipts. Hence, the rural poor still lack a transparent, verifiable, easily understood way to access information about account balances and the timing of direct deposit transfers. Given the deep mobile phone penetration in rural India and the fact that even low-literacy individuals regularly use the basic calling functions of mobile phones, can mobile technology facilitate access to and improve the quality of financial services for the rural poor? In this project, we will partner with a large public Indian bank to pilot an interactive voice response (IVR) system to give low-income, low-financial-literacy individuals information on account transactions and government benefits receipt. If the pilot is successful, we plan to scale the project to assess the impact of IVR notifications on bank account use, financial inclusion, and access to social protection benefits delivered via bank accounts.
This Transaction is Still Incomplete, Indian Express, October 24, 2016