Discussion Paper Details

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Title: Asset-based Microfinance for Microenterprises: Evidence from Pakistan

Author(s): Faisal Bari, Kashif Malik, Muhammad Meki and Simon Quinn

Publication Date: February 2021

Keyword(s): Capital Adjustment Costs, Microfinance and Randomized field experiment

Programme Area(s): Development Economics and Financial Economics

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.

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Bibliographic Reference

Bari, F, Malik, K, Meki, M and Quinn, S. 2021. 'Asset-based Microfinance for Microenterprises: Evidence from Pakistan'. London, Centre for Economic Policy Research.