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Library » Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila

Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila
Jul 2009, Karlan, D. & Zinman, J.
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Assessing impact of credit expansion for microentrepreneurs

This paper uses a field experiment and follow-up survey to measure impact of credit expansion on households and businesses of microentrepreneurs in Manila. The study generates variation in access to microcredit by working with a lender to randomly approve some microenterprise loans within a pool of marginally creditworthy, first-time applicants.

Study results indicate that individuals assigned to the treatment group did borrow more than those in the control group. Findings include:

Marginally creditworthy microentrepreneurs who randomly receive credit shrink their businesses relative to the control group;
Treatment group reports increased access to informal credit to absorb shocks;
Access to credit substitutes formal insurance;
Expanding access to credit increases profits for male microentrepreneurs, who seem to use these increased profits to send a child to school;
There is no evidence that increased access to credit improves well-being.

The paper calls into question the wisdom of microcredit policies that target women and microentrepreneurs to the exclusion of men and wage-earners. It highlights the importance of replicating tests of theories and programs across different settings.

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05 May 2010



Mary Otsyula Kenya

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Journal Volume/Pages:
32

Publisher(s):
Centre for Economic Policy Research (CEPR)