Effectiveness of microcredit programs: A randomized controlled trial in China

The research team selected 50 ultra poor villages among areas where the village fund program had not been implemented by 2010. The sample covers five out of the eleven ultra-poor cluster areas designated by the State Council. We randomly assigned treatment to 30 villages while held other 20 villages as the control group. Within each village, we used systematic sampling to randomly select 30 survey households.

The intervention was to establish the village fund in the treated villages under collaboration between the research team and the State Council Leading Group Office of Poverty Alleviation and Development. Specifically, after collection the baseline household and village surveys in August 2010, the State Council transferred each treated village 150,000 yuan to establish the village fund. The government issued formal documents to different levels of local governments about the general requirements/procedures of establishing and managing the fund, including accouchement and explanation of policy in treated villages, running selection of the fund committee, and training the fund committee members with financial knowledge and accounting skills under the help of the research team. In terms of actual practice, villages were encouraged to form their own implementation plan according to local conditions to fully realize the program’s potential. The State Council managed the administrative data of the village fund, including all transactions and defaults. The central and provincial government officials investigated into the administrative system every 1-3 months. The provincial government officials visited the treated villages for on-the-site checks of their account books frequently. Upon detecting suspicious lending, the government officials would further investigate into the village and fund committees and reported the issues to the central government. By comparison, the control group did not establish the village fund.

2010-09-01

2014-12-31

(1) Economic well-being: borrowing behaviour, defaults, income, consumption, assets,

(2) Village fund implementation: Composition of the village fund committee, behaviour of the members in the village fund committee (e.g., attending training and setting up loan terms), participants’ satisfaction of the village fund.

We collect administrative data of the Village Fund from the State Council Leading Group Office of Poverty Alleviation and Development. It includes records of borrowing, defaults, violation of rules, targeting and financial sustainability.

The research team has collaborated with the State Council Leading Group Office of Poverty Alleviation and Development to implement the RCT. It involves 1,500 households in 50 Chinese villages. The team has collected survey data via face-to-face interview at the household and village level, and obtained administrative data from the State Council Leading Group Office of Poverty Alleviation and Development. After collecting the baseline household and village surveys in August 2010, the State Council established the village fund – a formal microcredit program emphasizing support of agricultural production – in 30 treated villages, while kept other 20 villages as the controlled group. The State Council injected 150,000 yuan to each treated village for the initial fund for the microcredit program. The villagers decided whether to join the program on the voluntary basis. All participants to the project in the village selected the fund committee members who would manage the fund including attending necessary trainings held by upper-level governments, determining the loan terms and fines/penalties for defaults, and making lending decisions. The committee is in fully charge of the project management and financial sustainability as long as they follow the general guidelines set up by the State Council. The general guidelines include supporting the poor people and production activities, the maximum size, interest rate and loan term. The upper-level governments closely check administration from the project system covering all transactions and frequent visits to the treated village. The team re-interviewed the households and villages in July 2012 for the follow-up surveys and accessed the administrative data in the project system over the entire trial period 01/08/2010 and 31/12/2014.

The RCT uses the stratified randomisation. The research team selected 5 provinces covering coastal, central and inland China. The villages of each province were stratified by locations and income poverty rates. Within each village, all households were listed according to their wealth. 30 households were randomly selected within each village.

Village

No

50 villages

1500 households out of 50 villages in 5 provinces

900 households out of 30 villages are in the treatment group. 600 households out of 20 villages are in the control group.