Trinity economist wins award to investigate innovative flexible loan products

Posted on: 07 July 2016

Trinity economist Michael King has won a $300,000 award to investigate the impact of innovative flexible loan products on female market vendors in India. The award is provided by Innovation for Poverty Action (IPA), a research and policy non-profit, and is supported by the Bill and Melinda Gates Foundation. Professor King (Department of Economics and the Trinity IMpact Evaluation unit (TIME)) and Professor William Jack (Georgetown University) will lead the two year research project in conjunction with Mann Deshi Bank in Maharashtra, India.

The research examines whether new financial products can help Indian female market vendors pursue borrowing strategies tailored to their business needs, while building up a reserve of savings they can use to finance week-to-week inventory purchases.

An estimated 30,000 weekly markets operate in India. Some vendors finance working capital through short-term loans from either moneylenders or wholesalers at interest rates that range from 1-10 percent per day. These costly sources of credit reduce profits and inhibit business expansion; in many cases, the high cost of borrowing prevents business owners from accessing credit at all. This is especially problematic for female vendors, who are generally poorer than their male counterparts, meaning that they have less collateral and therefore less access to credit.

The products being tested feature increased flexibility in borrowing and repayment schedules, as well as an offsetting locked savings account that allows clients to build up savings while reducing interest rates on their loans.

The research comprises of an 18 month randomised control trial with 3,2000 female market vendors in 40 markets. The 3,200 female vendors will be divided into five groups and the four groups will be offered different financial products at their stall in the market place. To track performance of the different groups, the researchers will use survey and bank data to evaluate whether access to the different products increase microenterprise profit, drive business expansion, and impact household welfare.

The banking partner, Mann Deshi, is a cooperative bank founded in 1997 as the first women’s cooperative bank to receive a banking license from the Reserve Bank of India. Mann Deshi is a socially motivated bank, dedicated to supporting underserved women in impoverished areas with a set of accessible financial services that help women earn their livelihood.