MICROFINANCE PAPER WRAP-UP: Micro-loans, Insecticide-Treated Bednets and Malaria: Evidence from a Randomized Controlled Trial in Orissa (India); By Alessandro Tarozzi, Aprajit Mahajan, Brian Blackburn, Dan Kopf, Lakshmi Krishnan, Joanne Young; Working Paper Published by The Centre for Micro Finance, IFMR Research

By Alessandro Tarozzi, Aprajit Mahajan, Brian Blackburn, Dan Kopf, Lakshmi Krishnan, Joanne Young; published by the Center for Microfinance (CMF) at IFMR (Institute for Financial Management and Research); March 2011; 58 pages; available at http://ifmr.ac.in/cmf/publications/wp/2011/Bednets.pdf

This paper describes the design and results of a randomized controlled trial (RCT) intended to evaluate the relationship between microcredit and malaria prevention through an experiment conducted in a poor and rural area of Orissa, India. In partnership with Bharat Integrated Social Welfare Agency (BISWA), a nonprofit Indian microfinance institution (MFI), the authors made available insecticide-treated bednets (ITNs) through two schemes and measured the results against a control group that did not receive ITNs. The goals of the RCT were to test (a) the use of microcredit to promote ITN ownership; (b) the impact of ITN usage on the prevention of malaria and anemia; (c) the efficacy of contracts in increasing net re-treatment rates; and (d) the difference between not charging for the ITNs and charging full-price.

A baseline household study was conducted in May and June 2007, wherein the authors randomly sampled BISWA households and collected a variety of household data, including expenditures, individual demographic profiles, health events and relevant costs, and blood samples to measure hemoglobin levels and to test for malaria. The number of pre-existing bednets, along with self-reported usage of those bednets was also collected.

Mr Tarozzi et al randomly divided 141 villages served by BISWA into three categories: a control group, which was not eligible for any interventions; a “free” group, in which households were provided complimentary ITNs; and a “microfinance” group, which was sold ITNs and re-treatment packages at unsubsidized prices. In the “microfinance” group, participants could either pay in cash or borrow the money from BISWA. ITN borrowers were charged the standard BISWA annual interest rate of 20 percent, with a one-year term. Households from the final group were also given the option of prepaying the cost of two future re-treatments of the bednets, although they were also informed that survey personnel would visit the village after six and twelve months, at which time the households could pay cash for the re-treatment.

As a first step, Mr Tarozzi et al wanted to test the uptake of ITNs and specifically the differences in usage between the free and microfinance groups. In the sample villages, the authors found that 52 percent of households purchased at least one ITN, with the vast majority choosing a BISWA loan contract as their preferred method of payment. In these villages, the average purchase was 2.3 ITNs per household, versus 2.8 ITNs per household in the free distribution grouping. The authors found that the value placed on bednets by families is dependent upon “past exposure to malaria” and that “earlier usage [of bednets is] perhaps associated with higher perceived benefit.”

Self-reporting indicates that households in microfinance villages use ITNs more commonly than the control villages, but less frequently than free distribution villages. In the microfinance villages, Mr Tarozzi et al found that many families used the new ITNs to replace their old, un-treated bednets, with an emphasis on providing higher quality coverage to younger members of the household.

By offering prepaid re-treatment plans, the experiment was designed to test the impact of “sunk-costs”, in which the prepayment induces households to take advantage of their expenditure in the future. Indeed, the authors found a “remarkable difference” between households in the villages that chose to purchase an ITN along with two pre-paid re-treatments and those that waited to decide until representatives visited their village six and twelve months later, finding a “very strong association between re-treatment rates and pre-commitment to re-treat.” Because educational campaigns informed villagers of the importance of re-treatment, it is posited that the expense may have been too much to bear at the decision time. There was no offer of loans to cover the cost of re-treatment six or twelve months after the original distribution of the ITNs.

In the final analysis of health outcomes, the authors found no significant reduction in the incidence or prevalence of malaria infections. Although there were stark differences across age groups and genders, there was no statistically significant decrease in malaria or anemia. Among the possible explanations are the timing of the baseline study (conducted during the dry season, when new infections are unlikely), measurement error from the blood test and continued usage of older, untreated bednets.

Some of the problems associated with the RCT included a heavy reliance on self-reporting, which is prone to both misrepresentation and unintentional errors. Because the bednets were offered only at full cost, the price elasticity of demand was not captured and the magnitude of subsidization on ITN uptake is thus unknown. On the microcredit front, the authors found that 49 percent of households had repaid their loans in full, while approximately 20 percent had made no progress towards repayment. The inconclusive health outcomes are a concern for the broader field of malaria prevention, because ITNs have traditionally been seen as a very effective prophylactic.

By Rohan Trivedi, Research Associate

About Institute for Financial Management and Research (IFMR):
The Institute for Financial Management and Research (IFMR) is an Indian nonprofit organization whose mission is to facilitate universal access to financial services in rural India. Established in 1970 by ICICI, the House of Kotharis and other major industrial groups, IFMR focuses on the following areas: academic programs, research, executive training and consulting. Its affiliated research centers include: Centre for Micro Finance (CMF), Centre for Development Finance (CDF), Small Enterprise Finance Centre (SEFC), Centre for Insurance & Risk Management (CIRM), Center for Advanced Financial Studies (CAFS), Centre for Innovative Financial Design (CIFD) and Jameel Poverty Action Lab (J-PAL). It also operates a subsidiary microfinance institution (MFI), Kshetriya Gramin Financial Services (KGFS).

About Bharat Integrated Social Welfare Agency (BISWA):
BISWA is an Indian nongovernmental organization (NGO) that offers microfinance in tandem with various social service provisions. Established in 1995 in the Indian state of Orissa, BISWA is involved in programs that cover education, health, energy security and water and sanitation. BISWA’s microfinance operations are conducted through Credible Microfinance, a non-banking finance corporation (NBFC). As of March 31, 2011, BISWA reported to the US-based nonprofit Microfinance Information Exchange total assets of USD 82 million, a gross loan portfolio of USD 69 million and 384,000 active borrowers.

Sources and Additional Resources:

MicroCapital.org story, March 23, 2009: “MICROCAPITAL STORY: PlaNet Finance teams with Pfizer to Research Healthcare Needs of Low-Income Chinese in pursuit of Effective Microinsurance and Microfinance Plus Services”, https://www.microcapital.org/microcapital-story-planet-finance-teams-with…

MicroCapital.org story, November 5, 2008: “MICROCAPITAL EXCERPT: Using Microfinance to Fight Malaria with Bednets, by Michael Chasnow”, https://www.microcapital.org/microcapital-excerpt-using-microfinance-to-f…

MicroCapital Universe Profile: Institute for Financial Management and Research (IFMR), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ins…

MicroCapital Universe Profile: Bharat Integrated Social Welfare Agency (BISWA), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bha…

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