The real cost of credit constraints: Evidence from micro-finance
AbstractIn December 2010, the Indian state of Andhra Pradesh passed a law that severely restricted the operations of micro-finance institutions and brought the micro-finance industry to an abrupt halt. We measure the impact of micro-credit withdrawal in this unique natural experiment and find that average household expenditure dropped by 19 percent relative to a control group after the ban. The largest decrease was observed in expenditure on food. There is some evidence of higher volatility in consumption after the ban. All households were affected and not just the borrower households, which may suggest general equilibrium effects.
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Bibliographic InfoPaper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-013.
Length: 42 pages
Date of creation: Jul 2013
Date of revision:
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Consumption smoothing; credit; household finance; micro-finance ban; natural experiment;
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-BAN-2013-08-05 (Banking)
- NEP-CWA-2013-08-05 (Central & Western Asia)
- NEP-HME-2013-08-05 (Heterodox Microeconomics)
- NEP-MFD-2013-08-05 (Microfinance)
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