How Much do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance
Name
How much do Existing Borrowers value microfinance_
Description
Submitted version
Size
301.09 KB
Format
Unknown
Checksum (MD5)
86e93f141b654c98e46c92636813b38a
Author(s)
Banerjee, Abhijit
Duflo, Esther
Hornbeck, Richard
Date Issued
September 2018
Journal
Economica
Publisher
Wiley
Citation
Banerjee, Abhijit et al. "How Much do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance." Economica 85, 340 (October 2018): 671-700 © 2018 The London School of Economics and Political Science
Version
Original manuscript
Abstract
Randomized controlled trials have found only modest effects of microfinance, but these studies focus on new clients. Existing estimates may thus understate ongoing gains for more experienced borrowers and the longer-run potential of microfinance. We estimate impacts of microfinance on experienced borrowers, using an episode when a microfinance institution modestly increased existing clients’ fees in randomly selected villages (in exchange for a mandatory health insurance policy that turned out to be useless). This increase in fees led to a 22 percentage point decline in loan renewal in treatment villages (95% confidence interval: 16 to 27), compared to control villages where the policy was not introduced. Using this randomly generated variation in microfinance participation among experienced borrowers, we find impacts of microfinance that are strikingly similar to previous estimates for new clients: neither business outcomes nor household consumption were affected, on average. Also, consistent with prior studies, we find significant impacts on business outcomes among clients who had started their businesses before microfinance entered the village (0.06 standard deviation decline in an index of business outcomes from the loss of microfinance, 95% confidence interval: −0.002 to −0.12). However, despite these measured losses, these clients were just as willing to give up microfinance.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1111/ecca.12271
