Does information provision foster or hinder the effectiveness of microcredit for human capital investments?
Lead Research Organisation:
Institute for Fiscal Studies
Department Name: IFS Research Team
Abstract
Information provision and awareness campaigns are popular tools in international development, aiming to raise knowledge on particular topics, such as health, in order to trigger behaviour change, and to generate demand for related goods and services; with the overall aim of improving human capital outcomes. Despite their popularity, potential unintended consequences of such communication activities have to date been little studied.
The proposed research is designed to contribute to filling this gap by gaining a deeper understanding of the role of information provision in hindering, or fostering the effectiveness of microcredit for human capital investments.
Microcredit - small, usually collateral-free loans given to households in low-income countries - has been much studied and their ability in relaxing poor households' credit constraints to allow them to invest in entrepreneurial activities and cope with adverse events acknowledged. More recently, microcredit has also been shown to be effective in fostering human capital investments particularly preventive health investments such as bednets, water connections and toilets, supporting the emerging trends of private enterprises increasingly taking a role in solving social and environmental problems; and in growing numbers of investors seeking to make financial investments that produce significant social or environmental benefits. Microcredit programs often ensure high loan repayment through joint liability - groups of borrowers are liable for each other's loans, and thus monitor each other. However, this feature could influence the take-up and use of microloans for human capital investments, since financial returns to such investments take time to be realised.
Acknowledging that poor awareness of the existence of social programs could hinder take-up of these programs, awareness creation campaigns have become an essential component of the roll-out of new policy initiatives. However, such campaigns typically deliver multiple messages, which could inadvertently lead to recipients taking away a message that is contrary to that intended by the program designers, implying that information campaigns could backfire and hinder the adoption of human capital investments.
We are in the unique position to research such unintended consequence and their mechanisms by building on an interesting puzzle that emerged from a previously conducted study. In particular, we found that providing information alongside microcredit for human capital investment (sanitation), led to a similar increase in loan uptake on average as the provision of sanitation microloans only, but it resulted in fewer clients using the loan for household toilets, contrary to our original hypothesis.
We intend to explore three channels that could explain this puzzling finding. First, the delivery of the information campaign - through a different organisation from that providing the sanitation loans - might have how peer monitoring of sanitation loan use occurred, resulting in fewer toilets being built. Second, the information campaign might have increased awareness about the existence of the sanitation loans (and their favourable conditions), attracting households who wanted to borrow for a non-sanitation purpose. Third, the information campaign could have unintentionally discouraged households from using sanitation loans for sanitation, by making them believe, for instance that their own sanitation investments would be ineffective unless accompanied by similar investments from their neighbours.
We propose to answer these questions using a mixed-methods approach, combining a theoretical model, with quantitative data collected within the RCT and qualitative research. The key advantage of this combined approach is that it allows us to triangulate the research findings and hence to establish and explain patterns, trends, and mechanisms, in other words dig into the policy relevant questions of 'what' and 'why'.
The proposed research is designed to contribute to filling this gap by gaining a deeper understanding of the role of information provision in hindering, or fostering the effectiveness of microcredit for human capital investments.
Microcredit - small, usually collateral-free loans given to households in low-income countries - has been much studied and their ability in relaxing poor households' credit constraints to allow them to invest in entrepreneurial activities and cope with adverse events acknowledged. More recently, microcredit has also been shown to be effective in fostering human capital investments particularly preventive health investments such as bednets, water connections and toilets, supporting the emerging trends of private enterprises increasingly taking a role in solving social and environmental problems; and in growing numbers of investors seeking to make financial investments that produce significant social or environmental benefits. Microcredit programs often ensure high loan repayment through joint liability - groups of borrowers are liable for each other's loans, and thus monitor each other. However, this feature could influence the take-up and use of microloans for human capital investments, since financial returns to such investments take time to be realised.
Acknowledging that poor awareness of the existence of social programs could hinder take-up of these programs, awareness creation campaigns have become an essential component of the roll-out of new policy initiatives. However, such campaigns typically deliver multiple messages, which could inadvertently lead to recipients taking away a message that is contrary to that intended by the program designers, implying that information campaigns could backfire and hinder the adoption of human capital investments.
We are in the unique position to research such unintended consequence and their mechanisms by building on an interesting puzzle that emerged from a previously conducted study. In particular, we found that providing information alongside microcredit for human capital investment (sanitation), led to a similar increase in loan uptake on average as the provision of sanitation microloans only, but it resulted in fewer clients using the loan for household toilets, contrary to our original hypothesis.
We intend to explore three channels that could explain this puzzling finding. First, the delivery of the information campaign - through a different organisation from that providing the sanitation loans - might have how peer monitoring of sanitation loan use occurred, resulting in fewer toilets being built. Second, the information campaign might have increased awareness about the existence of the sanitation loans (and their favourable conditions), attracting households who wanted to borrow for a non-sanitation purpose. Third, the information campaign could have unintentionally discouraged households from using sanitation loans for sanitation, by making them believe, for instance that their own sanitation investments would be ineffective unless accompanied by similar investments from their neighbours.
We propose to answer these questions using a mixed-methods approach, combining a theoretical model, with quantitative data collected within the RCT and qualitative research. The key advantage of this combined approach is that it allows us to triangulate the research findings and hence to establish and explain patterns, trends, and mechanisms, in other words dig into the policy relevant questions of 'what' and 'why'.
Planned Impact
First and foremost, we will strive for our proposed research project to have direct implications for the institutions and funders involved in the specific interventions subject to this study, e.g. the microfinance institution Grameen Koota and its NGO arm, Navya Disha, and the umbrella organisation FINISH Society, which works with more than 60 partners in more than 50 districts in 10 states of India, including Micro Finance Institutions (MFIs), NGOs and Cooperatives. The hypotheses we will investigate have been generated from discussions with Grameen Koota and Navya Disha following the puzzling finding from the original trial.
Results of this research will continue to support implementing institutions to gain a better understanding of the underlying mechanisms of outcomes achieved through their interventions. This knowledge will enable evidence-based decision-making on the design and delivery of their interventions, and form the foundation of advocacy initiatives. Other funders (Strategic Impact Evaluation Fund (SIEF) at the World Bank) directly involved in the projects will draw on the research outputs to inform their activities, outputs and policies, with the ultimate aim of enhancing productivity in developing countries. We will also engage partners in our other ongoing research work related to microfinance and sanitation, including Cashpor India, WaterAid UK and Nigeria as well as PLAN International, through projects funded by the Bill and Melinda Gates Foundation and DfID.
To achieve our ultimate goal of supporting sector decision-making through the provision of rigorous academic evidence, we will work with our partners from these impact evaluation studies to help ensure that our analysis responds to sector-relevant questions, placing emphasis on engaging key sector actors and translating the evidence into digestible outputs. Details on planned activities are provided in the Pathways to Impact section, and include presenting findings at important sector convenings (European Research Conference on Microfinance, UNC Health and Water conference); engaging in one-to-one meetings with staff of institutions such as UNICEF who provide technical support to governments on sanitation interventions; active participation in donor meetings (organised by for example the Gates Foundation and DfID); and writing of policy brief and blogs, organisation of e-discussions, making use of tweets and publication of outputs on the IFS website (which currently enjoys >750k sessions and over 500k unique visitors a year from UK and abroad). We will benefit from the support of an experienced and successful communications team at the Institute for Fiscal Studies: including the Head of Public Relations, who has a strong track record of communicating with UK stakeholders in government, third sector, academia and media; and a media and writing consultant, who has wide networks in the international development community.
In all activities, we will be building on long-standing relationships. We expect the project design to continue to strengthen these relationships for future collaborations.
Results of this research will continue to support implementing institutions to gain a better understanding of the underlying mechanisms of outcomes achieved through their interventions. This knowledge will enable evidence-based decision-making on the design and delivery of their interventions, and form the foundation of advocacy initiatives. Other funders (Strategic Impact Evaluation Fund (SIEF) at the World Bank) directly involved in the projects will draw on the research outputs to inform their activities, outputs and policies, with the ultimate aim of enhancing productivity in developing countries. We will also engage partners in our other ongoing research work related to microfinance and sanitation, including Cashpor India, WaterAid UK and Nigeria as well as PLAN International, through projects funded by the Bill and Melinda Gates Foundation and DfID.
To achieve our ultimate goal of supporting sector decision-making through the provision of rigorous academic evidence, we will work with our partners from these impact evaluation studies to help ensure that our analysis responds to sector-relevant questions, placing emphasis on engaging key sector actors and translating the evidence into digestible outputs. Details on planned activities are provided in the Pathways to Impact section, and include presenting findings at important sector convenings (European Research Conference on Microfinance, UNC Health and Water conference); engaging in one-to-one meetings with staff of institutions such as UNICEF who provide technical support to governments on sanitation interventions; active participation in donor meetings (organised by for example the Gates Foundation and DfID); and writing of policy brief and blogs, organisation of e-discussions, making use of tweets and publication of outputs on the IFS website (which currently enjoys >750k sessions and over 500k unique visitors a year from UK and abroad). We will benefit from the support of an experienced and successful communications team at the Institute for Fiscal Studies: including the Head of Public Relations, who has a strong track record of communicating with UK stakeholders in government, third sector, academia and media; and a media and writing consultant, who has wide networks in the international development community.
In all activities, we will be building on long-standing relationships. We expect the project design to continue to strengthen these relationships for future collaborations.
| Description | The project aimed to use a mixed method approach combining quantitative analysis from an RCT with qualitative data collection to gain a deeper understanding of whether information provision fosters or hinders the effectiveness of microcredit for human capital investment. Covid-19 related disruption postponed the qualitative data collection significantly, making it very challenging to obtain reliable recall information and consequently to obtain a definitive answer to the underlying driver(s) of a puzzling quantitative finding that providing information along with microcredit led to lower conversion of sanitation loans to investments. Our analysis has allowed us to develop novel measures, and to rule out the relevance of some possible hypothesized explanations. First, through this grant, we use primary quantitative survey data on reports of loan take-up by other members of a client's joint liability group as well as their household composition combined with administrative data on actual borrowing to construct novel measures of peer monitoring: (i) awareness of loan take-up, and (ii) take-up of education loans by group members without children. While these measures are correlated with loan take-up decisions, they cannot explain the lower conversion of sanitation loans to investments observed in communities where information was provided along with the sanitation loans. However, we find that in these communities, clients were less aware of take-up of sanitation loans by group members, suggesting that the presence of the NGO providing information may have reduced peer monitoring for this loan. We also found little evidence of differential monitoring of loan use by loan officers in communities where the NGO was active. Though differences in peer monitoring cannot explain the lower conversion of sanitation loans to investments, the analysis has yielded novel insights on the nature of peer monitoring in joint liability micro-credit groups: we document that there is low awareness of loan take-up by other group members. However, group leaders are much better informed, and preliminary evidence suggests that they influence borrowing decisions. On-going work explores further the underlying reasons for this. Second, we find that respondents in the information + credit arm were more likely to recall sanitation information activities; indicating that the information intervention took place and was memorable. We, however, found no evidence that the information increased the salience of health externalities related to sanitation (which could have discouraged adoption in communities with low adoption). Further analysis suggests that availability of supply, i.e. sanitary hardware stores and tradesmen plays an important role in successful conversion of sanitation loans to toilets. We are currently analyzing whether this interacts with the information provision. While the qualitative data did not provide a definitive answer to the puzzle, it has provided useful insights that we were able to incorporate in other ongoing work on the importance of sanitation investments in marriage decisions (https://ifs.org.uk/publications/15864); how intra-household bargaining dynamics affect take-up and conversion of sanitation micro-credit (https://ifs.org.uk/publications/15865); and on the role of sanitation loans in facilitating bathroom construction (https://ifs.org.uk/publications/15414). Finally, the cross-disciplinary nature of the work has opened avenues for new and future collaborations. |
| Exploitation Route | Although we have not been able to progress on the grant as planned, the explorative nature of our work to date had two important impacts: For one, findings from both the qualitative and quantitative part of the work supported thinking and approaches in other research projects, including three papers that have been submitted to a special issue on sanitation and development. These findings have also fed into dialogues on the same topics with other researchers and stakeholders, organised in collaboration with the Asian Development Bank Institute. Second, it influenced discussions on potential future research projects, including one with water.org, a non-profit developmental aid organization that aims to provide aid to developing countries in Asia, Africa, and Latin America that do not have access to safe drinking water and sanitation. We have recently signed a non-disclosure agreement, which allows us to investigate their internal data and to deepen discussions on a joint research project. |
| Sectors | Communities and Social Services/Policy,Financial Services, and Management Consultancy |
| Description | The delays have meant that impacts did not have time to emerge yet. We did however discuss the puzzle in more details with the organization water.org, who is interested in a joint project to understand the role of information provision further. Discussions are ongoing. |
| First Year Of Impact | 2021 |
| Sector | Financial Services, and Management Consultancy,Other |
| Impact Types | Policy & public services |