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Asset-based Microfinance for Microenterprises: Evidence from Pakistan

Simon Quinn, Faisal Bari, Kashif Malik and Muhammad Meki

No 15768, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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

Keywords: Microfinance; Randomized field experiment; Capital adjustment costs (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-exp, nep-fdg and nep-mfd
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Journal Article: Asset-Based Microfinance for Microenterprises: Evidence from Pakistan (2024) Downloads
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