The Grameen America program uses a group microlending model that was pioneered by the original Grameen Bank program in Bangladesh designed by Nobel Peace Prize Laureate Muhammad Yunus and has since spread throughout the developing world. As in the original model, loans provided in the United States are approved on a group-lending basis, whereby individuals form groups of five individuals to access loans and cannot receive larger loans unless all group members are current on their loans, although they are all individually liable for the funds they receive.
Since 2014, MDRC has been conducting a study to learn whether and how the Grameen America program can reduce poverty and increase income for its member borrowers. The study is using a randomized controlled trial design to analyze the mechanisms that drive the program and to evaluate whether the model translates into improved outcomes for borrowers.
Additional Project Details
Agenda, Scope, and Goals
Despite the widespread implementation of microfinance programs throughout the world, there is limited rigorous evidence on the model’s effects on loan recipients’ employment, income, poverty reduction, and other outcomes, particularly in advanced economies. The rigorous evidence that is available (which is mostly from international studies) shows that microfinancing can lead to modest positive impacts on some outcomes for some groups. However, it is unclear whether those results can be generalized to other contexts, such as the United States.
Grameen America provides microloans to low-income female entrepreneurs through a group-lending model. All individuals who receive a loan must have a business purpose for the loan, which can be an existing business or a new venture. While members of a loan group cannot receive larger loans unless all group members are current on their loans, they are individually responsible for repaying their own loans. To overcome some of the limitations observed in previous studies, the evaluation conducted by MDRC randomized intact lending groups to maximize the difference in take-up of microloans between the program and control groups. This represented an increased challenge for recruitment, but it set the study up for a larger treatment contrast, thus providing a fairer test of the group-lending model than some previous studies.
Design, Sites, and Data Sources
The Grameen America evaluation uses a two-way randomized controlled trial design, using cluster random assignment, which allowed for the assignment of potential loan groups into one of two conditions: program group or control group. Those assigned to the program group have received all services provided by Grameen America, including a microloan and any potential increases upon repayment. Those assigned to the control group do not receive any services from Grameen America and are embargoed to receive any Grameen America loans until the end of the follow-up period.
The program serves a population of low-income female borrowers in urban settings, using a group lending model. MDRC ask Grameen America staff to recruit study participants at a New Jersey location. The sample of approximately 1,500 borrowers is comparable to the overall population served by Grameen America, thus improving the generalizability of the research.