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Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

Faisal Bari, Kashif Malik, Muhammad Meki and Simon Quinn

American Economic Review, 2024, vol. 114, issue 2, 534-74

Abstract: We run a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their usual borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero interest loan at the usual borrowing limit. We find large, significant, and persistent effects: treated microenterprise owners run larger businesses with higher profits; consequently, household consumption increases, particularly on food and children's education. A dynamic structural model with nonconvex capital adjustment costs rationalizes our results and allows counterfactual analysis; this highlights the potential for welfare improvements through large capital injections that are financially sustainable.

JEL-codes: C93 D22 G21 G32 L25 O14 O16 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/aer.20210169

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