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

35 Pages Posted: 28 Apr 2014

See all articles by Renuka Sane

Renuka Sane

Trustbridge Rule of Law Foundation; National Institute of Public Finance and Policy

Susan Thomas

xKDR Forum; Jindal Global University

Date Written: March 4, 2014

Abstract

In October 2010, the Indian state of Andhra Pradesh passed a law that severely restricted the operations of micro-finance institutions and abruptly brought the micro- finance industry to a halt. We measure the impact of the withdrawal of credit in this unique natural experiment. Average household expenditure in the state dropped by 19 percent when compared with controls over four quarters after the ban. The largest decrease was observed in expenditure on food, while expenditure on education saw increased volatility. The average consumption of all households were affected and not just the lower income households, which may suggest general equilibrium effects.

Keywords: micro-credit, micro-finance ban, natural experiment, Andhra Pradesh

JEL Classification: D14, G21, G28

Suggested Citation

Sane, Renuka and Thomas, Susan, The Real Cost of Credit Constraints: Evidence from Micro- Finance (March 4, 2014). Available at SSRN: https://ssrn.com/abstract=2404573 or http://dx.doi.org/10.2139/ssrn.2404573

Renuka Sane (Contact Author)

Trustbridge Rule of Law Foundation ( email )

New Delhi
India

National Institute of Public Finance and Policy ( email )

18/2, Satsang Vihar Marg
New Delhi, 110067
India

Susan Thomas

xKDR Forum ( email )

38, Patrakar CHS, Gandhi Nagar road no 5
Bandra East
Mumbai, IN India 400 051
India
00919821230385 (Phone)

Jindal Global University ( email )

Sonepath, Haryana, 131001
India

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