Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

49 Pages Posted: 11 Feb 2021

See all articles by Faisal Bari

Faisal Bari

Lahore University of Management Sciences (LUMS)

Kashif Malik

LUMS

Muhammad Meki

University of Oxford - Department of International Development

Simon Quinn

University of Oxford

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2021

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.

Suggested Citation

Bari, Faisal and Malik, Kashif and Meki, Muhammad and Quinn, Simon R., Asset-Based Microfinance for Microenterprises: Evidence from Pakistan (February 1, 2021). CEPR Discussion Paper No. DP15768, Available at SSRN: https://ssrn.com/abstract=3783994

Faisal Bari (Contact Author)

Lahore University of Management Sciences (LUMS) ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

Kashif Malik

LUMS ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

HOME PAGE: http://https://mgshss.lums.edu.pk/lums_employee/3022

Muhammad Meki

University of Oxford - Department of International Development ( email )

United Kingdom

Simon R. Quinn

University of Oxford ( email )

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