Returns to Islamic Microfinance: Evidence from a Randomized Experiment in Pakistan

Maazullah, () and Arjun Bedi
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Maazullah,: ISS, Erasmus University Rotterdam

No 10965, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The global microfinance movement is driven by the claim that once poor micro-entrepreneurs are provided access to capital, they will be able to generate high returns. The existing evidence on returns to capital is mixed and too limited to substantiate this claim. This paper reports on a field experiment conducted in Pakistan, in co-operation with Akhuwat microfinance, in which interest free loans were randomly provided to microenterprises. We find that treatment leads to a significant increase in working capital and in business profits. Using randomized treatment as an instrument for capital, we find average monthly returns to capital of 8.6 to 11.9 a month. These returns are substantially higher than the interest rates charged by microfinance institutions in Pakistan.

Keywords: Akhuwat microfinance; returns to capital; microfinance; microenterprises; randomized experiment (search for similar items in EconPapers)
JEL-codes: C93 O16 O17 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-08
New Economics Papers: this item is included in nep-ent, nep-exp and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published as 'Returns to Interest-free Microcredit: Evidence from a Randomised Experiment in Pakistan' in: Journal of Development Effectiveness, 2022, 14 (2), 93 - 107

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