Asset-based microfinance for microenterprises: Evidence from Pakistan

Working paper

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.

Authors: Bari, F; Malik, K; Meki, M; Quinn, S

• Publication status: Published
• Publisher: University of Oxford
• Journal: CSAE Working Paper Series
• Series: CSAE Working Paper Series
• Series number: WPS/2021-03
• Place of publication: Oxford
• Publication date: 2021-01-28
• Acceptance date: 2021-01-28
• Language: English