How Much Do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance

30 Pages Posted: 17 Sep 2018

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Richard Hornbeck

University of Chicago - Booth School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: October 2018

Abstract

Randomized controlled trials have found only modest effects of microfinance, but these studies focus on new clients. Existing estimates may thus understate ongoing gains for more experienced borrowers and the longer‐run potential of microfinance. We estimate impacts of microfinance on experienced borrowers, using an episode when a microfinance institution modestly increased existing clients’ fees in randomly selected villages (in exchange for a mandatory health insurance policy that turned out to be useless). This increase in fees led to a 22 percentage point decline in loan renewal in treatment villages (95% confidence interval: 16 to 27), compared to control villages where the policy was not introduced. Using this randomly generated variation in microfinance participation among experienced borrowers, we find impacts of microfinance that are strikingly similar to previous estimates for new clients: neither business outcomes nor household consumption were affected, on average. Also, consistent with prior studies, we find significant impacts on business outcomes among clients who had started their businesses before microfinance entered the village (0.06 standard deviation decline in an index of business outcomes from the loss of microfinance, 95% confidence interval: −0.002 to −0.12). However, despite these measured losses, these clients were just as willing to give up microfinance.

Suggested Citation

Banerjee, Abhijit V. and Duflo, Esther and Hornbeck, Richard, How Much Do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance (October 2018). Economica, Vol. 85, Issue 340, pp. 671-700, 2018. Available at SSRN: https://ssrn.com/abstract=3246027 or http://dx.doi.org/10.1111/ecca.12271

Abhijit V. Banerjee (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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617-253-6915 (Fax)

Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

Cambridge, MA
United States

HOME PAGE: http://www.povertyactionlab.org/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Richard Hornbeck

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

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