Does Access to Microfinance Affect Consumption Inequality? Evidence from a Randomized Controlled Trial in Andhra Pradesh, India

Assessing the success of microcredit in enabling clients to smooth consumption

This paper examines the impact of access to microfinance on consumption inequality using panel data of 6080 households available from a randomized evaluation conducted in 2013 in 104 slums of Andhra Pradesh, India. It finds that access to microcredit aggravates consumption inequality both at the slum-level and the household-level which is predominantly driven by expenditure on non-food items. The paper states that once all households across treatment and control slums have equal access to microcredit in the long-run, the disparity in consumption inequality between treatment and control slums disappears. The results suggest that larger loan size and higher number of loan cycles completed by older microcredit borrowers do not cause any significant divergence in consumption inequality across treatment and consumption households. The paper covers the following sections in detail:

  • Discussion of microcredit as a poverty alleviation tool;
  • Empirical motivation of the study and a review of relevant literature;
  • Experimental design and empirical model;
  • Discussion on data used for the study;
  • Results with a focus on slum-level, household-level, inequality decomposition by factor components, and percentile analysis;
  • Conclusion and policy implications.

About this Publication

By Mukhopadhya, J.P.