Consumption Smoothing in Micro Credit Programs

Nidhiya Menon ()

Development and Comp Systems from EconWPA

Abstract: This paper studies the benefits of participation in micro credit programs, and examines whether membership in these programs is an effective instrument in smoothing inter-seasonal consumption. We hypothesize that the benefits to participation accrue differentially over time, as more experienced participants are better equipped on their own to minimize per capita consumption fluctuations. Using an Euler equation approach, we show that consumption differentials across seasons are inversely related to length of membership. Estimates from the gender-stratified model suggest that for a female participant, one year of membership reduces the percentage change in per capita consumption, caused by a unit shock, by 6%. We present simulation results confirming that as length of membership increases, the 'certainty equivalent' of the participant decreases.

Keywords: Consumption smoothing; Micro credit; Euler equation (search for similar items in EconPapers)
JEL-codes: O P (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-mfd
Date: 2004-03-22
Note: Type of Document - pdf; pages: 35. 35 pages, pdf document
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