American Economic Review Vol. 114 No. 2 2024
Asset-Based Microfinance for Microenterprises: Evidence from Pakistan
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.
- DOI
- 10.1257/aer.20210169
- Volume
- 114
- Issue
- 2
- Pages
- 534-574
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref