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A snapshot of microenterprises in Hyderabad slums. Analysis of the baseline data from the Spandana impact evaluation study Abhijit V. Banerjee, Esther Duflo, Rachel Glennerster. Spandana. Spandana is an MFI operating mainly in AP. 200,000 clients and growing.

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a snapshot of microenterprises in hyderabad slums

A snapshot of microenterprises in Hyderabad slums

Analysis of the baseline data from the Spandana impact evaluation study

Abhijit V. Banerjee, Esther Duflo, Rachel Glennerster

spandana
Spandana
  • Spandana is an MFI operating mainly in AP. 200,000 clients and growing.
  • Offers group loans, individual loans with daily repayment, consumption loans.
  • Basic group loans start at Rs 7,000 and has a one year cycle. Early repayment is possible and additional Rs 2,000 is available after 6 months.
the goal of the impact evaluation
The goal of the impact evaluation
  • Determining the impact of microcredit on
    • Starting a business
    • Business expansion
    • Household welfare
    • Decision making in the household
    • Ambition and saving behavior
    • Etc…
  • Why is an impact evaluation useful?
    • Current scenario implicitly subsidizes micro-credit, but it may not last without evidence
    • Even if clients repay and continue to come, micro-credit may not be beneficial to them (they may not be rational when they make the decision to borrow)
    • Understanding the areas in which microcredit has an impact is important.
evaluation design
Evaluation Design
  • Evaluation is conducted in 100 “small slums” in H’bad. In these small slums, we randomly selected 50, where Spandana started working, and 50 where they did not.
  • Baseline study was conducted before lending started, with a little over 2,000 households (20 in each slums).
  • Baseline study was conducted in early 2005.
  • Households were randomly selected in each slums as long as they had at least one prime age woman (not selected for having a business or wanting to start one).
  • A post survey will be conducted after about 2 years, after lending has penetrated the slums, and the effects of the loans may have started to occur.
the average family
The average family
  • The average family is a family of 5, with monthly expenditure of Rs 5,000.
  • Poor, but not ultra poor: only 6% of these households live under a dollar a day per member, but 47% live under 2 dollars a day.
  • 67% of the household live in a house they own, and 29% in a house they rent. The median house has two room, kutcha for 2/3 of the time.
  • 98% of the 7 to 11 years old, and 84% of the 12 to 15 year old are in school.
businesses are very prevalent
Businesses are very prevalent
  • 31% of the households run at least one small business.
  • Out of these, 9% of households run more than one.
  • For comparison, in the OECD, only 12% of the households run a business.
but these businesses are very small
But these businesses are very small
  • Little specialized skills:
    • 11% tailors
    • 8% fruits and vegetable sellers
    • 17% general store or Kirana store
    • 6.6% telephone boot
    • 4.31% auto owners
    • 6.3% milk business
  • Many people in same slum running the same business
  • Employees:
    • Only 2% of business have a partner
    • Only 10% have any employee, none has more than 3
    • Including household members, 58% of business have only one person working in them, and 95% have less than 3
more on size
More on size
  • Assets
    • Only 20 out of 730 business have a separate room in which they operate.
    • 20% use no productive asset whatsoever.
    • Productive asset that are used:
      • Sewing machine (43)
      • Table (71) and Chair (83)
      • Balance (61)
      • Pushcart, motorized or not (86)
    • Almost none of these assets are rented.
  • Scale of business:
    • Sales: Rs 12,000 per month on average, Rs. 3600 median (in other words most businesses sell little)
inventory of a general store in a village in gulbarga karnataka
1 jar of snacks

3 jars of sweets

1 jar of candies

2 jars of chickpeas

1 jar of magimix

1 packet of bread (5 pieces)

1 packet of papadum

1 packet of toasts (20 pieces)

2 packets of biscuits

1 bag of sweets

36 incense sticks

20 bars of lux soap

180 pan parag packets

20 tea bags

40 individual packets of haldi powder

5 small bottles of talcum powder

3 packs of cigarettes

55 little packs of bidis

35 packets of bidis

3 packs of 500g of washing powder

15 small packs of Parle G biscuits

6 individual size packets of shampoo

Inventory of a general store in a village in Gulbarga, Karnataka
however owners work long hours
However owners work long hours
  • Where the owners work full time, they report very long hours: in our data, the number of hours worked in the last week ranges between 40 hours per week and 119 hours per week.
  • The mean is 72, and the median is 77, which means more than ten hours a day, seven days a week.
  • Some businesses, like the shop we saw in Gulbarga, are part-time businesses, one of the many activities the owner undertakes.
  • Part-time owners averaged 24 hours per week.
profitability
Profitability
  • The average monthly profit, after deducting any rents they pay but not including the unpaid time spent by household members, is Rs 1,859, and the median is Rs 1,035.
  • Fifteen percent of the businesses have lost money in the last month, after subtracting rents.
  • When we value the hours spent by household members, even at the low rate of Rs 8 an hour (which would give someone close to the minimum wage for a eight hours day), the average profits turn mildly negative.
  • Is this because the scale is sub-optimally small?
  • Or is it because the household is starting a business to “buy a flexible job”.
    • But would the availability of much/cheaper bigger loans change that?
credit availability
Credit availability
  • A large fraction of household have debt:
    • 69% of the households have at least one outstanding loan
    • 46% of the households have more than one outstanding loan
  • The average loan, when it was taken out, was for Rs 20,000 (median Rs 10,000)
  • The average interest rate is 3.85% per month.
  • Loans are taken from moneylenders (49%), family members (13%), friends or neighbors (28%). Rarely commercial banks, almost no MFI loan (before our evaluation/Spandana entry)
perceived credit constraints and repayment capacity
Perceived credit constraints and repayment capacity
  • Perceived repayment capacity: Rs 500 per month (median) and Rs 1,000 (mean)
  • More or less the repayment on a Rs 7,500 loan from Spandana…
  • Among those households who do not have a loan, 56% say they want one but could not obtain one.
  • However, people are largely unaware of: how much of the loan is still outstanding, how much longer they will need to pay the installment for, etc…
reason for incurring debt
Reason for incurring debt
  • Relatively rarely taken for a business expense:
    • Households that have business are no more likely to be indebted.
    • Main purposes for taking out a loan: Health (17%), temporary difficulty (10%), Marriage (13%), Home construction (10%), regular consumption (10%).
    • Business acquisition only 7% and business expansion only 1.33%.
savings insurance and shocks
Savings, Insurance and shocks
  • 34% of the households have a savings account.
  • 26% have a life insurance policy.
  • But almost none have any health insurance cover.
  • Yet 40% of the household had to spend Rs500 or more on health in the last year.
  • For those who had to spend, the average expense was R7500 (median Rs 3,000)
  • 60% of the households who had a sick member had to borrow: so 24% of the household borrowed for health in the past year.
why not save more
Why not save more?
  • While credit is almost surely a constraint for these women, the fact that they do not save more is puzzling
  • The capital stock of many of these businesses is not large: the shop in Gulbarga had at most Rs.1500.
  • For family like the family that owned it ($2-4 per day) to be double their capital stock, they would just need to spend no more on alcohol and tobacco as the households below $1 per day.
  • Why don’t they?
  • May be it would take much larger loans to start something really productive: something that would not be exactly the same as many others, for one.
  • Are the Spandana loans big enough?