Renuka Sane, Susan Thomas
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The paper studies the effect of a law that banned micro-credit lending in the
state of Andhra Pradesh in India. Regions in Andhra Pradesh are matched to re-
gions that did not face the ban. A differences-in-differences estimation of changes
in matched regions is used to establish a causal impact on average household con-
sumption in the region. The results show that the average household consumption
in the ban-affected regions dropped by 15 percent immediately after the ban com-
pared to the matched regions, and persisted for four quarters. The result is robust
to cross-sectional variations in regional exposure to micro-finance prior to the ban,
variation in rural and urban locations, and variations in matching strategy. The
analysis points to a ban as a sub-optimal intervention to improve customer welfare. |