A snapshot of microenterprises in Hyderabad slums

1
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

2
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.

3
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.

4
Evaluation Design

• Evaluation is conducted in 100 small slums in
  Hbad. 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.

5
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.

6
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.

7
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

8
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)

9
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

10
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.

11
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?

12
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)

13
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

14
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.

15
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.

16
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 dont 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?

17
Thank you!