The Real Cost of Credit Constraints: Evidence from Micro-finance

Renuka Sane and Susan Thomas

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 1, 151-183

Abstract: The paper studies the effect of a law that banned micro-credit lending in the state of Andhra Pradesh in India. Regions in Andhra Pradesh are matched to regions that did not face the ban. A difference-in-difference estimation of changes in matched regions is used to establish a causal impact on average household consumption in the region. The results show that the average household consumption in the ban-affected regions dropped by 15% immediately after the ban compared to the matched regions, and persisted for four quarters. The result is robust to cross-sectional variations in regional exposure to micro-finance prior to the ban, variation in rural and urban locations and variations in matching strategy. The analysis points to a ban as a sub-optimal intervention to improve customer welfare.

Keywords: micro-credit; consumption smoothing; household finance; regulatory ban; natural experiment (search for similar items in EconPapers)
JEL-codes: D14 G21 G28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1515/bejeap-2014-0154 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: The real cost of credit constraints: Evidence from micro-finance (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:16:y:2016:i:1:p:151-183:n:5

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejeap/html

DOI: 10.1515/bejeap-2014-0154

Access Statistics for this article

The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig

More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter
Bibliographic data for series maintained by Peter Golla ().