The Impact of Short-Term Credit on Microenterprises: Evidence from the Fincomun-Bimbo Program in Mexico

Pablo Cotler and Christopher Woodruff

Economic Development and Cultural Change, 2008, vol. 56, pages 829-849

Abstract: The lack of credit is often mentioned as one of the major constraints facing small businesses. We use differences in the phasing in of a new lending program designed to serve clients of the largest snack food company in Mexico to identify the impact of credit on outcomes of small retail enterprise in Mexico City. We find that the loans have positive impacts on the smallest firms but negative impacts on larger firms. These results are consistent with hypotheses that smaller firms have higher returns to capital and face greater credit constraints. Given that the program involved loans given for 4-month terms, we find surprisingly large effects on investment in fixed assets.

Date: 2008

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