Working Paper: CEPR ID: DP15768
Authors: Faisal Bari; Kashif Malik; Muhammad Meki; Simon Quinn
Abstract: We conduct a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their previous borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero-interest loan. We find large, significant and persistent effects from asset finance contracts: treated microenterprise owners run larger businesses and enjoy higher profits;consequently, household consumption increases, particularly on food and children's education. A dynamic structural model with non-convex capital adjustment costs rationalises our results; this highlights the potential for welfare improvements through large capital injections that are financially sustainable for microfinance institutions.
Keywords: microfinance; randomized field experiment; capital adjustment costs
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Asset-based microfinance (G21) | Larger business size (L25) |
| Larger business size (L25) | Average increase in monthly profits (E25) |
| Average increase in monthly profits (E25) | Significant rise in household income (D19) |
| Significant rise in household income (D19) | Increase in household consumption expenditure (D12) |
| Increase in household consumption expenditure (D12) | Notable increases in spending on education and food (H52) |