The real cost of credit constraints: Evidence from micro-finance

Renuka Sane and Susan Thomas

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: In December 2010, the Indian state of Andhra Pradesh passed a law that severely restricted the operations of micro-finance institutions and brought the micro-finance industry to an abrupt halt. We measure the impact of micro-credit withdrawal in this unique natural experiment and find that average household expenditure dropped by 19 percent relative to a control group after the ban. The largest decrease was observed in expenditure on food. There is some evidence of higher volatility in consumption after the ban. All households were affected and not just the borrower households, which may suggest general equilibrium effects.

Keywords: Consumption smoothing; credit; household finance; micro-finance ban; natural experiment (search for similar items in EconPapers)
JEL-codes: D14 G21 G28 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-07
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-hme and nep-mfd
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Related works:
Journal Article: The Real Cost of Credit Constraints: Evidence from Micro-finance (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2013-013

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