JOB MARKET PAPER
The Moneylender as Middleman: Formal Credit Supply and Informal Loans in Rural India [Available Here]
A majority of household borrowing in developing countries is from non-institutional lenders. In this paper, I exploit exogenous weather-induced shocks to household credit demand and variation in bank credit supply to demonstrate that informal moneylenders rely on bank credit to ease lending capital constraints in rural India. I document that informal moneylenders use loans from banks as lending capital, and they increase borrowing from banks following weather-induced increases in household credit demand. Moreover, following an equivalent demand shock, districts with higher predicted bank credit supply see larger increases in household borrowing from moneylenders than those with lower predicted bank credit supply — driven by changes in moneylender supply rather than in household demand for credit overall. These results help explain the persistence of informal credit since they indicate that, rather than competing with informal moneylenders, banks effectively collaborate with them.
A majority of household borrowing in developing countries is from non-institutional lenders. In this paper, I exploit exogenous weather-induced shocks to household credit demand and variation in bank credit supply to demonstrate that informal moneylenders rely on bank credit to ease lending capital constraints in rural India. I document that informal moneylenders use loans from banks as lending capital, and they increase borrowing from banks following weather-induced increases in household credit demand. Moreover, following an equivalent demand shock, districts with higher predicted bank credit supply see larger increases in household borrowing from moneylenders than those with lower predicted bank credit supply — driven by changes in moneylender supply rather than in household demand for credit overall. These results help explain the persistence of informal credit since they indicate that, rather than competing with informal moneylenders, banks effectively collaborate with them.
PUBLICATIONS
Relief from Usury: Impact of a Self-Help Group Lending Program in Rural India [Available Here]
(with Vivian Hoffmann, Vijayendra Rao and Upamanyu Datta)
Forthcoming, Journal of Development Economics
Provision of low-cost credit to the poor through self-help groups (SHGs) has been embraced as a key poverty-reduction strategy in developing countries, but evidence on the impact of this approach is thin. Using a randomized program rollout over 180 panchayats, we evaluate the impact of a government-led SHG initiative in the Indian state of Bihar. Two years after the start of the program, we find a dramatic increase in SHG membership, borrowing from SHGs, and a corresponding decline in the use of informal credit. Fewer informal lenders are operating in treatment villages, and those who do charge lower interest rates. While these credit market impacts could lead to substantial improvements in economic well-being over time, the short-run impact of the program on such outcomes is modest.
(with Vivian Hoffmann, Vijayendra Rao and Upamanyu Datta)
Forthcoming, Journal of Development Economics
Provision of low-cost credit to the poor through self-help groups (SHGs) has been embraced as a key poverty-reduction strategy in developing countries, but evidence on the impact of this approach is thin. Using a randomized program rollout over 180 panchayats, we evaluate the impact of a government-led SHG initiative in the Indian state of Bihar. Two years after the start of the program, we find a dramatic increase in SHG membership, borrowing from SHGs, and a corresponding decline in the use of informal credit. Fewer informal lenders are operating in treatment villages, and those who do charge lower interest rates. While these credit market impacts could lead to substantial improvements in economic well-being over time, the short-run impact of the program on such outcomes is modest.
WORKING PAPERS
Access to Finance, Empowerment and Women's Employment: Experimental Evidence from Rural Bihar
Federal and state governments in India have relied on women’s Self-Help Groups (SHGs) to provide access to low-cost credit and savings with the dual intent of financial inclusion and women’s empowerment. I focus on one such SHG initiative in the state of Bihar, Jeevika, and exploit the randomized roll-out of the program to evaluate its impact on women’s labor supply. I find that the program had mixed effects across caste categories. Women from more privileged households increased their labor supply, while both women and men from disadvantaged households decreased their labor supply. The decline in labor supply among disadvantaged households is driven by reduced participation in agricultural wage labor, and is associated with an increase in agricultural labor wage rates. These results suggest that better access to finance reduces the need to sell labor as a coping mechanism for women from more vulnerable households; while allowing women from privileged households to increase their labor force participation in more ‘suitable’ occupations.
Federal and state governments in India have relied on women’s Self-Help Groups (SHGs) to provide access to low-cost credit and savings with the dual intent of financial inclusion and women’s empowerment. I focus on one such SHG initiative in the state of Bihar, Jeevika, and exploit the randomized roll-out of the program to evaluate its impact on women’s labor supply. I find that the program had mixed effects across caste categories. Women from more privileged households increased their labor supply, while both women and men from disadvantaged households decreased their labor supply. The decline in labor supply among disadvantaged households is driven by reduced participation in agricultural wage labor, and is associated with an increase in agricultural labor wage rates. These results suggest that better access to finance reduces the need to sell labor as a coping mechanism for women from more vulnerable households; while allowing women from privileged households to increase their labor force participation in more ‘suitable’ occupations.
RESEARCH IN PROGRESS
Gender-Wage Gaps in Agricultural Labor Markets in Rural India
(with Manaswini Rao)
(with Manaswini Rao)