Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program September 2020 M. Victoria Quiroz Becerra Kelsey Schaberg Daron Holman Richard Hendra Dissemination of MDRC publications is supported by the following organizations and individuals that help finance MDRC’s public policy outreach and expanding efforts to communicate the results and implications of our work to policymakers, practitioners, and others: The Annie E. Casey Foundation, Arnold Ventures, Charles and Lynn Schusterman Family Foundation, The Edna McConnell Clark Foundation, Ford Foundation, The George Gund Foundation, Daniel and Corinne Goldman, The Harry and Jeanette Weinberg Foundation, Inc., The JPB Foundation, The Joyce Foundation, The Kresge Foundation, and Sandler Foundation. In addition, earnings from the MDRC Endowment help sustain our dissemination efforts. Contributors to the MDRC Endowment include Alcoa Foundation, The Ambrose Monell Foundation, Anheuser- Busch Foundation, Bristol-Myers Squibb Foundation, Charles Stewart Mott Foundation, Ford Foundation, The George Gund Foundation, The Grable Foundation, The Lizabeth and Frank Newman Charitable Foundation, The New York Times Company Foundation, Jan Nicholson, Paul H. O’Neill Charitable Foundation, John S. Reed, Sandler Foundation, and The Stupski Family Fund, as well as other individual contributors. The findings and conclusions in this report do not necessarily represent the official positions or policies of the funders. For information about MDRC and copies of our publications, see our website: www.mdrc.org. Copyright © 2020 by MDRC®. All rights reserved. Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program M. Victoria Quiroz Becerra Kelsey Schaberg Daron Holman Richard Hendra September 2020 OVERVIEW his report summarizes 18-month findings from the evaluation of the Grameen America pro- gram, a microfinance institution that provides loans to low-income women in the United States who are seeking to start or expand a small business. The program is based on the Grameen Bank model developed in Bangladesh during the late 1970s. Its objective is to reduce poverty through the provision of Tloans, financial training, and peer support. The Grameen America evaluation is using a randomized controlled trial design to explore the mechanisms of program operations and whether the model leads to improved outcomes for borrowers. The evaluation includes an implementation analysis, which examines how the program operates and the experiences of borrowers and program staff; and an impact analysis, which assesses the program’s effects on participants’ outcomes, including the study’s two primary outcomes: individual net income and types of material hardship experienced. Other outcomes include wage- and self-employment, earnings and other income, assets, and financial well-being. The implementation analysis includes outcomes from program-tracking data as well as findings from interviews with borrowers, focus groups, observations of the program, and interviews with Grameen America staff. The impact findings in this report are based on sample members’ responses to an 18-month survey and credit report data from a major credit reporting agency. The Grameen America evaluation is funded by the Robin Hood Founda- tion. Key Findings ✦ The Grameen America program resulted in increased business ownership and monthly business earnings (monthly business revenue minus expenses). At the same time, the program reduced wage-based employment and monthly earnings from wage-based employment. Due to these offsetting effects, the program did not result in an increase in overall net income (gross earnings minus business expenses) in the prior month, the first of two primary outcomes. However, the program did result in a decrease in the types of material hardship experienced, the second pri- mary outcome. ✦ The pattern of impacts on the study’s two primary outcomes is puzzling. The report proposes that part of the explanation for how the program decreased material hardship while not having an effect on income lies in the ways a small loan can provide liquidity to meet financial obliga- tions. That is, borrowers may set aside some funds from the loan for a rainy day or to invest in more inventory that can later be used to maintain a steady flow of cash; they may also use funds from increased business revenue for everyday expenses. Is it possible that other aspects of the program are also contributing to ease material hardship? The study found increases in savings, access to credit, and social support, which could all contribute to reduced material hardship. These findings are not the final word on the Grameen America evaluation. An upcoming report will assess the impacts of the program after 36 months. In addition to reporting on the same measures as those in this report, the next phase of the study will look at the impact of the program on assets such as the purchase of appliances to help support businesses. The longer-term follow-up period will provide a clearer picture of the effects of the Grameen America program. Overview | iii CONTENTS Overview iii List of Exhibits vi Acknowledgments ix Executive Summary ES-1 1 Introduction 1 Cecilia 1 The Grameen America Model 2 The Evaluation of Grameen America 3 Financial Access as a Strategy to Improve Economic Well-Being 6 Key Findings 7 2 The Grameen America Model and Its Practice 9 Soledad 9 Grameen America’s Theory of Change 9 Grameen America Model in Practice in Union City 11 Loan Receipt, Characteristics, and Repayment History 19 3 Accessing Loans to Create or Expand a Business 23 Agustina 23 Access to Financial Services 24 Impacts of Grameen America on the Characteristics of Small Businesses 31 Sonia 32 4 Making Ends Meet 37 Laura 37 Impact of the Grameen America Program on Net Income 38 Experiences of Material Hardship 44 Income and Material Hardship Impacts, by Subgroups 47 iv | Putting Microfinance to the Test 5 Building Assets, Savings, and a Credit History 49 Soledad and Alejandra 49 Building a Credit History 50 Savings 53 Debt 55 6 A Sense of Well-Being and Social Support 57 Amalia, Cecilia, and Agustina 57 Building and Strengthening Social Relationships 58 7 Conclusion 67 Rosa, Delia, and Sara 68 Moving Forward 69 Appendix A Supplementary Tables: Impacts on Employment Status, Income, and Material Hardship 71 B Supplementary Tables: Impacts on Credit History, Savings, and Debt 77 C Supplementary Tables: Impacts on Group Relationships, Social Support, and Well-Being 81 D Collection and Analysis Approaches for Grameen America Evaluation Quantitative Data 85 E Additional Information and Tables on Grameen America Evaluation Program-Tracking Data 103 F Impacts on Primary and Mediating Outcomes by Subgroups 111 References 119 Earlier MDRC Publications on Grameen America 123 iv | Putting Microfinance to the Test Contents | v EXHIBITS Tables 2.1 Loan and Repayment History Within 18 Months of Random Assignment Among Grameen America Group Members 20 3.1 Impacts on Loan Receipt and Help Received from an Organization or Program at 18 Months 25 3.2 Impacts on Self-Employment at 18-Months 30 A.1 Impacts on Wage-Based Employment and Earnings at 18 Months 73 A.2 Impacts on Income, Employment Status, and Benefits at 18 Months 74 A.3 Impacts on Material Hardship at 18 Months 76 B.1 Impacts on Credit Score and Attributes at 16-21 Months After Random Assignment 79 B.2 Impacts on Savings and Debt at 18-Months 80 C.1 Impacts on Relationships with Other Loan Group Members at 18 Months 83 C.2 Impacts on Social Support, Well-Being, and Empowerment at 18 Months 84 D.1 18-Month Survey Response Rates 87 D.2 Selected Baseline Characteristics of Research Sample Members by Response to the 18-Month Survey 88 D.3 Estimated Regression Coefficients for the Probability of Responding to the 18-Month Survey, by Random Assignment Cohort 90 D.4 Selected Baseline Characteristics of All Sample Members and 18-Month Survey Respondents, by Research Group 91 D.5 Estimated Regression Coefficients for the Probability of Being a Grameen America Group Respondent to the 18-Month Survey, by Random Assignment Cohort 92 vi | Putting Microfinance to the Test D.6 Impacts on Primary and Mediating Outcomes, Weighted by Likelihood of Survey Response 93 D.7 Comparison of Impacts on Income, Savings, Debt, and Earnings by Level of Exclusion of Outlier Values 97 D.8 Percentage Missing on Key Outcomes 99 D.9 Comparison of Adjusted versus Unadjusted Impacts, Primary and Mediating Outcomes 100 D.10 Standard Errors and Effect Sizes for Key Outcomes 101 E.1 Wage-Earning Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 107 E.2 Self-Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 108 E.3 Wage-Earning and Self-Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 110 F.1 Impacts on Subgroups Defined by Direct-Selling /Multilevel Marketing Business Status 113 F.2 Impacts on Subgroups Defined by Self-Employment Status 114 F.3 Impacts on Subgroups Defined by Household Income Level 115 F.4 Impacts on Subgroups Defined by Level of Familiarity Among Members of Loan Group 116 F.5 Impacts on Subgroups Defined by Number of Business Types Loan Group Members Operated or Intended to Operate 117 vi | Putting Microfinance to the Test Exhibits | vii Figure ES.1 Grameen America 18-Month Impact Snapshot ES-5 1.1 Grameen America Model 4 1.2 Grameen America Evaluation Study Timeline 5 2.1 Grameen America Theory of Change