Working Paper: CEPR ID: DP7396
Authors: Dean S. Karlan; Jonathan Zinman
Abstract: Microcredit seeks to promote business growth and improve well-being by expanding access to credit. We use a field experiment and follow-up survey to measure impacts of a credit expansion for microentrepreneurs in Manila. The effects are diffuse, heterogeneous, and surprising. Although there is some evidence that profits increase, the mechanism seems to be that businesses shrink by shedding unproductive workers. Overall, borrowing households substitute away from labor (in both family and outside businesses), and into education. We also find substitution away from formal insurance, along with increases in access to informal risk-sharing mechanisms. Our treatment effects are stronger for groups that are not typically targeted by microlenders: male and higher-income entrepreneurs. In all, our results suggest that microcredit works broadly through risk management and investment at the household level, rather than directly through the targeted businesses.
Keywords: formal finance; informal finance; microcredit; microentrepreneurship; microfinance; risk sharing
JEL Codes: D1; D2; G2; O2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access to microcredit (O16) | Increase in formal sector borrowing (F65) |
| Access to microcredit (O16) | Decrease in informal borrowing (G21) |
| Access to microcredit (O16) | Decrease in business size and scope (L25) |
| Access to microcredit (O16) | Increase in profits for male borrowers (G51) |
| Access to microcredit (O16) | No significant effect on profits for female borrowers (G59) |
| Access to microcredit (O16) | Shift in household investments (G59) |
| Shift in household investments (G59) | Increase in enrollment in education for children (I21) |
| Shift in household investments (G59) | Decrease in reliance on formal insurance (G52) |