DP15768 Asset-based Microfinance for Microenterprises: Evidence from Pakistan
Author(s): | Faisal Bari, Kashif Malik, Muhammad Meki, Simon Quinn |
Publication Date: | February 2021 |
Keyword(s): | Capital Adjustment Costs, Microfinance, Randomized field experiment |
JEL(s): | |
Programme Areas: | Financial Economics, Development Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=15768 |
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.