Asset-Based Microfinance for Microenterprises: Evidence from Pakistan
American Economic Review
vol. 114,
no. 2, February 2024
(pp. 534-74)
Abstract
We run a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their usual borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero interest loan at the usual borrowing limit. We find large, significant, and persistent effects: treated microenterprise owners run larger businesses with higher profits; consequently, household consumption increases, particularly on food and children's education. A dynamic structural model with nonconvex capital adjustment costs rationalizes our results and allows counterfactual analysis; this highlights the potential for welfare improvements through large capital injections that are financially sustainable.Citation
Bari, Faisal ⓡ Kashif Malik ⓡ Muhammad Meki ⓡ Simon Quinn. 2024. "Asset-Based Microfinance for Microenterprises: Evidence from Pakistan." American Economic Review, 114 (2): 534-74. DOI: 10.1257/aer.20210169Additional Materials
JEL Classification
- C93 Field Experiments
- D22 Firm Behavior: Empirical Analysis
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance