Experimental Design Details
The impact of both new loan products on loan demand, repayment quality, and poverty impacts will be evaluated using a two-pronged RCT in close cooperation with our implementing partner, microfinance institution (MFI) Al Amana. Al Amana operates the largest MFI branch network across Morocco: 560 branches of which 301 branches are based in rural areas. Each rural branch serves on average 800 clients who live in the villages (douars) that surround the branch. A total of 40 shortlisted rural branches participate in the study.
Part A: Impact of grace-period loans and tailored loans on borrower welfare (individual-level randomization). In Part A, we assess how grace-period loans and tailored loans affect borrower welfare. This intervention takes place in 40 of Al Amana’s rural branches. It was rolled out in a staggered fashion in three waves. The intervention is expected to last 12 weeks in each branch. On the basis of Al Amana’s administrative data, we estimate that a total of around 3,600 eligible potential borrowers will visit the participating branches to apply for a loan during this period. Part A is restricted to individuals (either renewing or first-time loan applicants) who demonstrate a desire to take out standard microcredit by visiting one of the participating branches to apply for such a loan. Participating individuals are randomly assigned to receive one of three loan offers: a tailored loan (treatment, I1), a grace period loan (treatment, I2), or the standard loan as currently offered by Al Amana (control, I0). We thus evaluate the effect of the new loans on the welfare of the self-selected population of individuals who are willing to take out a standard loan. This strategy allows us to minimize the differential loan take-up between the different treatment groups if the new loans were offered to the entire population. For example, the take-up could be larger for the flexible loans than for the standard loan making potential differences in end-line outcomes between those treatments hard to interpret (because the group of compliers would not be the same) We will be able to evaluate both the effect of the offer of flexible loans on clients’ welfare (intention to treat, ITT, effect) and the effect of the loans for those who take up the offer (local average treatment effect, LATE). Our assumption, based on the initial focus groups, is that the current microcredit product is sub-optimal for (some) existing and potential borrowers. The fact that borrowers need to start repaying right after disbursement and that repayment installments are fixed across the full loan cycle may push (some) borrowers into choosing specific types of investments. We measure the type of investments undertaken by the households, their profitability, as well as the subsequent effects on households’ living conditions and on their repayment capacity. Account managers at each of the 40 participating branches are obliged to use a pre-programmed randomization tool that indicates the type of loan product (tailored, grace period, or standard) that should be offered to each individual applicant. Validation checks have been included in this tool so that loan officers cannot overrule the randomization allocation. For each loan application the research team can observe the outcome of the randomization tool, the loan type that was offered to the client, and therefore any discrepancies that may exist between both. We have implemented stringent ex post checks to guarantee that credit officers fully respect the randomization rule. Loan officers have been trained and instructed to promote the (randomly) assigned loan type to each potential borrower with the aim of convincing them to take out a loan of that type.
Part B: Impact of grace-period loans and tailored loans on the demand for microcredit (village-level randomization). In Part B of the project, we evaluate the demand for the grace-period loans and tailored loans in a separate set of villages (within the catchment area of the same branches as in Part A). This allows us to measure the relative intensity of each constraint on microcredit take up. The entire population of these villages will be targeted. This intervention takes place in the same 40 branches participating in the individual research design (Part A) and will happen after that initial intervention. In each branch’s catchment area, we have identified – using Al Amana’s administrative data – 8 villages with a significant number of potential borrowers. These villages will randomly receive one of the following loan offers: a tailored loan (treatment, V2), a grace period loan (treatment, V3) or a standard loan as currently offered by Al Amana (control, V1). An Al Amana promotional team will visit each of the participating villages and conduct door-to-door discussions to provide information about the assigned loan type to the village inhabitants. Such a promotional visit will take place every two weeks in each participating village (the total number of visits per village will be four). Because the interventions include both access to a new loan offer and regular promotional campaigns, the remaining two villages will receive the current standard loans as per the usual promotional activities carried out by Al Amana (pure control, V0). This will allow us to disentangle the effect of the new loan offer from that of the associated marketing activities.
This research design will measure the effects of the new loans on microcredit take-up and repayment behavior by capturing the effects of the new loan offer on the existing pool of clients as well as on the new pool of clients the new loans may attract. We expect that the interventions increase take-up at the village level in part by attracting different pools of new clients. For example, the intervention on loans with a grace-period may attract riskier borrowers that have seasonal income flows (but that may generate higher returns).
To understand the process that takes place once the interventions at the village level (V1 and V2) are implemented, we will collect data on the characteristics of the participants in the information sessions and collect qualitative data four months after the village-level interventions start. Our goal is to understand changes in intermediary outcomes such as perceptions about credit, knowledge about Al Amana’s offer and the use of borrowed funds. This will be done through focus groups with randomly selected participants in the village-level interventions. These focus groups will take place about two months after the start of the village-level intervention.
For Part B of the analysis, our main final outcomes will be measured at both the village and the individual level: the number of loans disbursed, the average loan size, the proportion of loans taken by women, the average repayment ratio, portfolio at risk, and client retention. At the individual level, we will also use administrative data from Al Amana to describe the characteristics of borrowers in terms of age, type and size of activities, and repayment history (if any), that select into these new flexible loans. We will also compare them to the characteristics of clients in villages where the standard loan product is offered. To this end, we will carefully match Al Amana’s administrative data to each study participant.
Following this promotional campaign, we will monitor the loan disbursements at the participating branches for a period of 24 weeks (6 months) to determine the effect on demand for each of these three types of microcredit. A total of 320 (40x8) villages participate in Part B.
The pool of loan applicants from treatment villages V2 and V3 that approach Al Amana branches during Part B of the study may differ from those coming from control villages where Al Amana’s regular loan product is on offer. We intend to use Al Amana’s administrative data on key characteristics of loan applicants (age, gender, marital status, income, borrowing history, and type of entrepreneurial activity) to describe this population and compare it to the applicant pool coming from the control villages.