Vikram Akula faults conclusions of the 2015 Duflo-Banerjee study on microfinance

Microfinance poster-boy Vikram Akula has questioned the methods adopted by Esther Duflo and Abhijit Banerjee, Nobel Laureates in Economics for 2019, to study the impact of microfinance in India.

The founder of SKS Microfinance (now Bharat Financial Inclusion Ltd) found fault with the randomised controlled trials (RCTs) method used by the duo in 2015. They used the RCT method in a study on MFI Spandana, titled The Miracle of Microfinance? Evidence From a Randomised Evaluation. The 2015 Banerjee et al study examined Spandana in Hyderabad between 2005 and 2010.

The authors concluded that “monthly consumption does not increase for those who had early access to microfinance, either in the short run... or in the long run.’’ It suggested that microfinance does not make much of a difference in terms of increased incomes.

Questioning the study

According to Akula, there were methodological problems with the RCT. “Even households which did not take a Spandana loan were included as part of the survey. This is not a study about borrowing; it is about being able to borrow,” he said. There was also a ‘selection bias’ in the study as it was conducted in an area in which Spandana had limited interest.

Akula also questioned the comparative value of the study as some of the intentional examples given by the economists were different from that of Indian products and offerings.

Citing from his own field experiences and Robert Chamber’s Rural Development: Putting the Last First, Akula doubted the accuracy of data as surveys often intimidate the poor borrowers who may end up giving inaccurate information.

Why is all this relevant now? This might prompt a rethinking of the conclusions of the Nobel Laureates’ study on impact of microfinance in the country and provide new leads in analysis.