Pitt and Khandker (PK, 1998) apply a quasi-experimental design to 1991-92 data they conclude that microcredit raises household consumption, especially when lent to women. Contradictions among them have produced lasting controversy and confusion. The most-noted studies on the impact of microcredit on households are based on a survey fielded in Bangladesh in the 1990s. The results originally reported in the Pitt and Khandker paper hold up extremely well in this new analysis. The authors show that identification does not require both of these, and present new results dropping each assumption in turn. The second is the application of the "one-half acre" program eligibility rule. The first is the validity of the exclusion restrictions underlying the use of interactions between program choice and the set of exogenous variables (including the village fixed effects) as instruments. We also further examine two aspects of our instrumental variable approach that have been attacked by Roodman and Morduch. As in their previous efforts, the methods of Roodman and Morduch are shown to bias the findings in the direction of rejecting the results of Pitt and Khandker. On the basis of Roodman and Morduch's preferred two-stage least squares regression, an alternative calculation of the standard errors would lead one to conclude that the problem with Pitt and Khandker is that they underestimate the positive and statistically significant effect of women's credit on household consumption. In thispaper the authors show that these latest Roodman and Morduch claims are based on seriously flawed econometric methods and theory and a lack of due diligence in formulating models and interpreting output from packaged software. "The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence," by David Roodman and Jonathan Morduch (2011) is the most recent of a sequence of papers and postings that seeks to refute the findings of the Pitt and Khandker (1998) article "The Impact of Group-Based Credit on Poor Households in Bangladesh: Does the Gender of Participants Matter?" that microcredit for women had significant, favorable effects on poverty reduction. The authors use the Ramanagaram financial diaries to provide a counter narrative to the dominant Yunusian Grameen narratives on microfinance and poverty alleviation by not looking at microfinance loans in isolation but by situating them in the context of the totality of consumption, cash inflows and debt that govern the lives of the poor.
An analysis of their expenditures points to the genesis of the crisis, namely that MFI loan repayments led to impoverishment since these were made at the cost of basic household consumption, like food staples. During the study period (September 2008-July 2009), an informal ban on MFI repayments was called which offered a rare opportunity to collect data from the same households in the presence and absence of MFI loan repayments.
Using the financial diary methodology in a study of 90 poor households in Ramanagaram town, in the district of Ramanagaram, Karnataka, India, this article analyses how household cash flows are impacted by the presence or absence of MFI loans. What is sorely missing are the perspectives of the clients. The Indian microfinance institutes (MFI) crisis has spawned several debates on the MFI movement.
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