The Microfinance Disappointment: An Explanation based on Risk Aversion

Omer Moav (o.moav@warwick.ac.uk), Alexey Khazanov, Zvika Neeman and Hosny Zoabi

No 12659, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent research indicates that microcredit has not contributed significantly to poverty reduction. Take up of affordable credit by the poor for investment in businesses, education and health, turned out to be very low. We argue that this can be explained by risk aversion, when investment affects the probability of success of a risky project. Our model abstracts from fixed costs in the production technology, commonly assumed in the existing literature. There are no imperfections in the loan market, and we abstract from assumptions about false beliefs by the poor regarding the production function or other behavioral assumptions. We conclude that to facilitate investment and thereby reduce poverty, policy should be aimed at reducing the risk faced by the poor.

Date: 2018-01
New Economics Papers: this item is included in nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://cepr.org/publications/DP12659 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
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:cpr:ceprdp:12659

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12659
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).