Working Paper: NBER ID: w18970
Authors: Brian Greaney; Joseph P. Kaboski; Eva Van Leemput
Abstract: This paper examines a cost-reducing innovation to the delivery of "Self-Help Group" microfinance services. These groups typically rely on outside agents to found and administer the groups although funds are raised by the group members. The innovation is to have the agents earn their payment by charging membership fees rather than following the status quo in which the agents are paid by an outside organization and instead offer free services to clients. The theory we develop shows that such membership fees could actually improve performance without sacrificing membership, simply by mitigating an adverse selection problem. Empirically, we evaluate this innovation in East Africa using a randomized control trial. We find that privatized entrepreneurs providing the self-help group services indeed outperform their NGO-compensated counterparts along several dimensions. Over time, they cost the NGO less and lead more profitable groups; also, households with access to privately-delivered groups borrow and save more, invest more in businesses, and may have higher consumption. Consistent with the theory, these privatized groups attract wealthier, more business-oriented members, although they attract no fewer members.
Keywords: Self-Help Groups; Microfinance; Cost Recovery; Randomized Control Trial; East Africa
JEL Codes: O10; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| privatized entrepreneurs providing SHG services (L33) | higher group profitability (L21) |
| privatized entrepreneurs providing SHG services (L33) | higher consumption levels (E21) |
| households with access to privatized groups (L33) | more borrowing, saving, and business investment (E22) |
| treatment villages (O18) | significant increase in credit access (H81) |
| privatized service delivery (L33) | enhances effectiveness of SHGs (O16) |