Essays in Development Economics in Reference to the Indian Credit Sector

This dissertation comprises four empirical essays with the objective of understanding how to improve the delivery of credit to the poor in India by studying caste discrimination in credit, women’s empowerment, and impact of business training and repayment cycle on loan volumes, investment and incomes. The study uses primary data collected by myself from a village in the Indian state of Haryana from the clients of three microfinance institutions (MFIs), cooperative credit society and professional money lenders between 2015 and 2017 over three field visits; and from the India Human Development Survey (IHDS) data of 2005 and 2011-12. In the first chapter, from the IHDS data, I examine whether the borrowers’ caste differences explain their differences in credit volumes. Using the Blinder–Oaxaca decomposition method, along with the Heckman procedure and the instrumental variable (IV) procedure to correct for selection and simultaneity bias, I find large credit differentials between upper castes and lower castes. I also show the evidence of caste discrimination (against the lower castes) and its increase between 2005 and 2012. I corroborate discrimination from the qualitative information collected in my field surveys. Using the village survey data, my second chapter examines the impact of women’s empowerment on their creditworthiness, measured in terms of total amount of loans (taken over time). An empowerment index is constructed from the borrowers’ responses to questions regarding economic, social, interpersonal and political consciousness. I find that more empowered women secure greater loans. However, empowerment is likely to suffer from endogeneity, which is address by adopting the Instrumental Variable (IV) approach and using the sex of the borrower’s first child as an instrument for empowerment. The IV estimates show a positive impact of empowerment on the volume of loans. My explanation is that empowered women may have a higher ability to utilise loans for their businesses due to greater mobility, purchasing capacity, and economic independence. I study the robustness of this finding using the IHDS data. In the third chapter, I evaluate the impact of a business training programme on women microfinance clients using the same village survey data and interviews. The treatment group is the borrowers from one MFI that received business training (by an exogenous rule), while the control group had no training. Using difference-in-difference, I find that training did increase their incomes albeit with a reduction in their investment. The ‘treated’ women realised that expanding business without necessary knowledge and skills was risky, and hence cut back on investment. In the fourth chapter, I explore if flexibility in repayment would be beneficial for clients as opposed to traditional weekly repayments using the same primary data and in-depth interviews. I find that the flexible and monthly repayment increased the level of investment as compared to the weekly schedule, but it did not raise income. The monthly repaying clients also had a higher loan amount and greater savings compared to the weekly paying clients. In sum, the study covers some key issues of the poor borrowers, and it highlights the need for removing caste barriers, eliminating son preferences, training women entrepreneurs, and flexible and infrequent loan-repayment cycles

3000 Years of Discrimination and Counting: How Caste Still Matters in the Indian Credit Sector

The caste system has dominated the social, political and economic lives of Indian people for over three thousand years. Since independence, the Indian government has introduced a flood of quotas, schemes and affirmative action to tackle caste discrimination. Can seventy years of government policy reverse three thousand years of oppression? Taking a close look at the country's credit system reveals that a new, more subtle, and less overt form of discrimination appears to be emerging, and becoming more widespread. This paper examines whether caste-based differences influence the amount of credit sanctioned to borrowers in India utilising data from the India Human Development Survey collected in 2005 and 2011-12. Using the Blinder–Oaxaca decomposition method, along with the Heckman procedure and the instrumental variable approach to correct for selection and simultaneity bias, I find substantial credit differentials between the general caste and other lower castes. I also show the evidence of caste discrimination against the lower castes. The results of this research have been complemented by qualitative data gathered from interviewing lower caste borrowers in North India to understand the nature of discrimination and obstacles faced by them in the credit sector

Losing the plot: the impact of urban agriculture on household food expenditure and dietary diversity in sub-Saharan African countries

Urban agriculture (UA) is proposed as a solution to the social and economic challenges presented by cities by providing urban households with food and income using environmentally friendly food production techniques. To date, most analysis of UA has been based on single-city studies. This paper aims to contribute to the literature by using a cross-country approach and by analysing household level data from nine sub-Saharan countries—Burkina Faso (2014), Ethiopia (2013), Ghana (2009), Malawi (2013), Niger 2014, Nigeria (2012), Tanzania (2010) and Uganda (2013). This paper sets out to answer three questions; the first investigates which are the main characteristics of households engaged in urban agriculture; the second looks at the role played by UA in diversifying household diets and reducing household food expenditure; the third examines the heterogeneity in the impact of UA across the food expenditure distribution. Using an inverse-probability weighted regression adjustment method, the results show that households engaged in agriculture reduced expenditure on food and modified their food expenditure profile by spending more on protein rich food -nuts, legumes, fruits, dairy products, meat and poultry. The study also finds substantial variation on the impact of UA across the food expenditure distribution

Make microfinance great again: can flexibility in repayments improve business outcomes in North India?

Classic microfinance loan contracts characterised by rigid weekly repayment schedules used by most microfinance institutions offer little flexibility – and little benefit - to borrowers who are poor and have seasonal income. Previous research has also shown that such contracts can negatively affect the economic well-being of poor borrowers leading to underinvestment of capital, selling of productive assets, over-indebtedness through cross-financing from informal sources, reductions in consumption and income, and in some cases, a deterioration in borrowers' mental health arising from stress and worry. If lenders offered more flexibility in loan repayment schedules, would it help to overcome some of these problems? To explore this, we tested whether clients' business outcomes were sensitive to various repayment schedules using primary data collected from the clients of three microfinance institutions, a cooperative society and a few local traders specialising in business lending in a village in North India. We analysed alternatives to the rigid contract model, focussing on the degree of flexibility and the length of gap between repayments in the loan schedule. This study finds that clients repaying their loans monthly invested more in their businesses and earned higher income, compared both to those who repaid weekly and to those with an irregular payment schedule

Time to remit: the effect of remittances on household consumption and dietary diversity in India

India has enjoyed over twenty years of rapid economic growth. The benefits of this growth, however, have largely bypassed India's poor; around a quarter of the world's malnourished children reside in India, and their health poses a significant challenge for the Indian government. Although the growth in India's domestic economy did not result in many trickle-down benefits for the hungry poor, anecdotal evidence suggests that food security related indicators has benefited from another factor. Both rural or urban households have become increasingly reliant on remittances and used them to improve their food security. This paper explores the pattern of relationship between remittances and food consumption/diversity utilising data from the India Human Development Survey collected in 2005 and 2011–12. Using Heckman procedure and the instrumental variable approach to correct for selection and simultaneity bias, the paper finds that remittances increase total food expenditure (mainly the expenditure on protein-rich food such as meats, eggs, pulses, vegetables and fruits) as well as food diversity, measured using the Household Dietary Diversity Score, Shannon and Simpson Index. The results are robust to models’ specification and support the existing evidence that remittances represent a mechanism by which households improve their food security

Time to remit: the effect of remittances on household consumption and dietary diversity in India

India has enjoyed over twenty years of rapid economic growth. The benefits of this growth, however, have largely by-passed India's poor; around a quarter of the world's malnourished children lives in India, and their wasted bodies and stunted lives represent a challenge for the Indian government. Although the growth in India's domestic economy did not result in many trickle-down benefits for the hungry poor, anecdotal evidence suggests that food security related indicators has benefited from another factor. Both rural or urban households have become increasingly reliant on remittances and used them to improve their food security. This paper explores the pattern of relationship between remittances and food consumption/diversity utilising data from the India Human Development Survey collected in 2005 and 2011-12. Using Heckman procedure and the instrumental variable approach to correct for selection and simultaneity bias, the paper finds that remittances increase total food expenditure (mainly the expenditure on protein-rich food such as meats, eggs, pulses, vegetables and fruits) as well as food diversity, measured using the Household Dietary Diversity Score, Shannon and Simpson Index. The results are robust to models’ specification and support the existing evidence that remittances represent a mechanism by which households improve their food security