Does Equitas Microfinance still work for the poor?

Microfinance has made a pretty major comeback after the whole 2010 fiasco where people bashed MFIs (microfinance institutions) for being ineffective at fighting poverty, money hungry, and, in the Indian state of Andhra Pradesh, responsible for farmer suicides. There was general public outcry at the idea of for-profit MFIs. Intuitively, it seemed to make sense that the only way to make a profit when dealing with the poor would be to pick the poor’s pockets. This really broke the Robin Hood perception that microfinance had built around itself. I learned all this from Challenges of Global Poverty – the same course I talked about in this blog post.

 

Recently, I saw that there was not only a resurrection of sorts for microfinance as an industry, but for the for-profit MFIs as well. Bandhan, Equitas, SKS, Janalakshmi, and Ujjivan – the five biggest MFIs in India based on loan portfolio size (according to the 2014-15 SKS annual report), are either public or have an IPO waiting in the wings.

I wanted to see exactly how for-profit microfinance institutions were making a killing. Did they change where they were based? Apart from a withdrawal from Andhra Pradesh, the state where the government made repaying MFI loans illegal, causing many of these institutions to nearly shut shop, there weren’t many changes. Had they changed their target customers? I can’t say. It didn’t look that way from their reports. The stories about women transforming their hobby of stitching into a full blown saree business were all there.

To answer this question, I’d have to see if for-profit MFIs were serving the poorest of the poor or whether they had moved on to slightly bigger fish. I decided to take a crack at it by comparing the GDP of a city against the number of Equitas Microfinance branches there were in that city. If they were looking to maximize profit, it’d seem like they would prefer larger, wealthier accounts (for a higher profit margin per account). And if they were moving to cities with a higher GDP, that could mean they were ‘abandoning’ the poor in pursuit of this bigger fish in bigger cities.

I found the branch data for Equitas on their website.

A quick fact about the graph: Chennai is such an anomaly because Equitas is based in Chennai.

I found a correlation coefficient of 0.73 when I regressed the number of Equitas branches on the GDP for each town. This is a pretty convincing correlation. So, yes, Equitas at least, was moving to cities. Still, does that mean it’s fair to start pointing fingers at MFIs and accuse them of ‘abandoning’ the poor? No, it’s likely that there could be a ton of other factors I overlooked.

First, moving to a city doesn’t make an MFI less sensitive to the poor. It could just mean that they cater to the urban poor – something that I haven’t taken into account. Second, this is specific to Equitas. Not all MFIs are distributed like this. Third, maybe a third factor, such a population, would explain both these variables.

To narrow my search, I’d have to test the branch location data of MFIs against the percentage of poor in each city, other MFI locations (to see if they open in the same cities) and population. This would make a little clearer if Equitas and other MFIs still operate for the poorest of the poor. I’ll do this in upcoming blog posts and hopefully come closer to an answer.

Do women-headed households spend more on jewellery?

 

It’s now a couple months that I’ve been studying what could possibly influence store locations of many big franchises. Cafe Coffee Day, Domino’s pizza, Inox, PVR, Eicher Motors – there’s been a few now. In nearly every one of those cases, the answer seemed to be GDP. GDP was almost always the best indicator for store location, and for good reason. It makes intuitive sense that a location with more production has more income and that a location with more income has more spending.

Still, I wanted to see if there was somehow a better indicator – one that was not as obvious. So I switched tracks from a mid-range franchise pool (Domino’s pizza, Inox) to a premium pool to see if I’d find something new. I decided to take up Tanishq, both because it’s India’s leading jewellery brand with 160 stores and because they’ve racked up a reputation for superior design.

 

I figured that the proportion of number of households headed by women to the total population would be a good variable to compare against Tanishq stores. It seemed to make sense that a woman who called the shots in the family would have more room to spend on things she wanted, the same way a man in a typical patriarchal family would spend more on things he wanted.

 

% Households headed by women is the number of houses where a woman brings the majority of family income to the household (per state), divided by the state population. This data is from the 2011 India Census. I found the data on number of Tanishq stores on their website.

I regressed the households headed by women on the number of Tanishq stores per state and found a correlation of 0.52. This wasn’t small, but it wasn’t large either. I took the variables by state because taking them by district left me with a whole lot of single-store districts and no meaningful conclusions.

A lot of things could be going on here: Maybe, as Poor Economics – a book which proved to me that something as easy-looking as financial aid doesn’t really help the poor – suggests, women are better at allocating earnings to the family, and not themselves. Maybe in households that purchased from Tanishq, jewellery was a gift and not something the wife went out and bought.

Another likely reason could be that Tanishq is following a specific expansion plan – they have a higher presence in North India. This would interfere with our assumption that Tanishq store locations per state are purely a function of the number of women-headed households in that state.

Or maybe, and I think this is the more likely picture, a third factor explains the two. For example, GDP. Maybe households are more likely to be headed by women in more developed states, and Tanishq prefers opening in these developed states.

Next week, I’ll try finding a better variable to explain Tanishq store locations – one that will hopefully show a stronger correlation than GDP.