An Evaluation of Village - Level Micro nance Institutions

This paper evaluates village-level micro nance institutions in rural and semi-urban Thailand using data from a large strati ed, clustered cross-sectional survey. As is typically the case, micronance institutions have emerged in Thailand without the bene t of experimental controls. Thus, the data has neither randomized participation nor program placement. In addition, we do not study a pre-speci ed, narrow set of institutions with known operational and selection policies. Indeed, as is often the case, we do not have reliable pre-survey information on the presence of or absence of a plethory of possible institutions, including those emerging endogenously at the local level. Nor do we have variations in policies across these many institutions. There is, however, at least one advantage in this { the variation in policies observed in the survey allow an assessment of policies correlated with success. A key ingredient of the Thai survey and analysis here is the use of data from multiple instruments { institutions, households and village key informants. From these various instruments to highlight important institutioal and village characteristics that are correlated with proximite targets for institutional success: growth of membership, growth of saving and growth of credit. Membership success is positively correlated with underlying member characteristics (i.e. stable landowning memberships). Savings success is positively correlated with several institutional policies (i.e. pledged savings accounts, low collateral requirements, open membership, the use of minimum initial deposit requirements and membership application forms); positively correlated the provision of emergency assistance and non-agricultural training; and positively correlated with member characteristics (i.e. relatively poor memberships). Lending success is positiverly correlated with some institutional policies (i.e. using savings as collateral for loans and making cash loans), positively correlated with the provision of agricultural training, and negatively correlated with recently established large initial funds. There is much evidence in the data that villages with institutions, and with successful instititons in particular, di er from villages without institutions, or with unsuccessful institutions, in ways not related to the institutions themselves. That is , villages where instititons exist prior to, at the time of, or after a retrospective date tned to have more nancially active households, but the villages are poorer, more agricultural, and more informal. Villages with successful lending instititons average signi cantly lower incomes and educational levels, and have tighter credit. Villages with successful savings institutions tend to have higher levels of credit, but more limited savings. Evidence from recently established institutions and institutions without savings suggest these charateristics predate the instititutions themselves. In short, there is ample evidence of selection bias. An assessment of the direct impact of micronance institutions on household and household businesses must take individual and village selection into account. Linear regressions and simple probits of the frequency of household business start-ups, credit constraints in business or agriculture, occupational mobility, reliance on moneylenders, and asset growth would show that village-level instittiuons have insigni cant or even perverse e ects. Controlling for village-level selection and explicitly allowing for individual selection, correlated errors, or simultaneity in membership and impact equations eliminates all perverse e ects and estimates signi cant positive e ects of institutions on promoting asset growth, reducing credit constraints in agriculture, reducing reliance on moneylenders and increasing occupational