IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp5249.html
   My bibliography  Save this paper

Are Microloans Bad for Growth?

Author

Listed:
  • Emerson, Patrick M.

    (Oregon State University)

  • McGough, Bruce

    (Oregon State University)

Abstract

This paper constructs a two-period overlapping generations model of human capital investment decisions where a microloan program designed to finance entrepreneurial activities is active. It is shown that, in the presence of human capital externalities (social returns to education) there exists a range of microloan amounts that are growth depressing and welfare decreasing through their affect on the opportunity cost of schooling. By increasing the opportunity cost of schooling, microloans divert investment away from human capital: by failing to internalize the social returns to education, households’ individually optimal investment decisions in the face of microcredit availability act to depress the growth of the economy and result in sub-optimal welfare outcomes.

Suggested Citation

  • Emerson, Patrick M. & McGough, Bruce, 2010. "Are Microloans Bad for Growth?," IZA Discussion Papers 5249, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5249
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp5249.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
    2. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," The World Bank Economic Review, World Bank, vol. 4(3), pages 351-366, September.
    3. Xavier Gine & Dean Karlan, 2006. "Group versus Individual Liability: A Field Experiment in the Philippines," Working Papers 940, Economic Growth Center, Yale University.
    4. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
    5. Wydick, Bruce, 1999. "The Effect of Microenterprise Lending on Child Schooling in Guatemala," Economic Development and Cultural Change, University of Chicago Press, vol. 47(4), pages 853-869, July.
    6. Asadul Islam & Chongwoo Choe, 2013. "Child Labor And Schooling Responses To Access To Microcredit In Rural Bangladesh," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 46-61, January.
    7. Elizabeth Schroeder, 2020. "The impact of microcredit borrowing on household consumption in Bangladesh," Applied Economics, Taylor & Francis Journals, vol. 52(43), pages 4765-4779, September.
    8. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
    9. Leonardo Becchetti & Pierluigi Conzo, 2010. "The controversial effects of microfinance on child schooling: A retrospective approach," Working Papers 173, ECINEQ, Society for the Study of Economic Inequality.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Raihan, Selim & Osmani, S. R. & Khalily, M. A. Baqui, 2017. "The Macro Impact of Microfinance in Bangladesh: A CGE Analysis," Conference papers 332868, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Raihan, Selim & Osmani, S.R. & Khalily, M.A. Baqui, 2017. "The macro impact of microfinance in Bangladesh: A CGE analysis," Economic Modelling, Elsevier, vol. 62(C), pages 1-15.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Coleman, Brett E., 2006. "Microfinance in Northeast Thailand: Who benefits and how much?," World Development, Elsevier, vol. 34(9), pages 1612-1638, September.
    2. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    3. Xavier Giné & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2010. "Microfinance Games," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 60-95, July.
    4. repec:dau:papers:123456789/13356 is not listed on IDEAS
    5. Al-Azzam, Moh'd & Carter Hill, R. & Sarangi, Sudipta, 2012. "Repayment performance in group lending: Evidence from Jordan," Journal of Development Economics, Elsevier, vol. 97(2), pages 404-414.
    6. DeanS. Karlan, 2007. "Social connections and group banking," Economic Journal, Royal Economic Society, vol. 117(517), pages 52-84, February.
    7. Thorsten Beck & Asli Demirgüç-Kunt & Patrick Honohan, 2009. "Access to Financial Services: Measurement, Impact, and Policies," The World Bank Research Observer, World Bank, vol. 24(1), pages 119-145, February.
    8. Demont, Timothée, 2016. "Microfinance spillovers: A model of competition in informal credit markets with an application to Indian villages," European Economic Review, Elsevier, vol. 89(C), pages 21-41.
    9. Karlan, Dean & Gine, Xavier, 2009. "Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups," Working Papers 61, Yale University, Department of Economics.
    10. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October.
    11. Fischer, Gregory, 2011. "Contract structure, risk sharing and investment choice," LSE Research Online Documents on Economics 41890, London School of Economics and Political Science, LSE Library.
    12. Lehner, Maria, 2009. "Group Lending versus Individual Lending in Microfinance," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 299, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    13. Nicholas Sabin, 2023. "Choosing partners: selection priorities of joint liability group leaders," Empirical Economics, Springer, vol. 64(1), pages 323-348, January.
    14. Chliova, Myrto & Brinckmann, Jan & Rosenbusch, Nina, 2015. "Is microcredit a blessing for the poor? A meta-analysis examining development outcomes and contextual considerations," Journal of Business Venturing, Elsevier, vol. 30(3), pages 467-487.
    15. Hisaki KONO & Kazushi TAKAHASHI, 2010. "Microfinance Revolution: Its Effects, Innovations, And Challenges," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 15-73, March.
    16. Cason, Timothy N. & Gangadharan, Lata & Maitra, Pushkar, 2012. "Moral hazard and peer monitoring in a laboratory microfinance experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 192-209.
    17. van Rijn, Jordan, 2018. "The Effect of Membership Expansion on Credit Union Risk and Returns," Staff Paper Series 588, University of Wisconsin, Agricultural and Applied Economics.
    18. Diego A. B. Marconatto & Luciano Barin-Cruz & Eugenio Pedrozo, 2016. "Lending Groups and Different Social Capitals in Developed and Developing Countries," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 20(6), pages 651-672.
    19. Mohammad Zainuddin & Ida Md Yasin, 2020. "Resurgence of an Ancient Idea? A Study on the History of Microfinance," FIIB Business Review, , vol. 9(2), pages 78-84, June.
    20. Samuel Lee & Petra Persson, 2016. "Financing from Family and Friends," The Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2341-2386.
    21. Hisaki Kono, 2006. "Is group lending a good enforcement scheme for achieving high repayment rates? Evidence from field experiments in vietnam," Artefactual Field Experiments 00075, The Field Experiments Website.

    More about this item

    Keywords

    microloans; growth; human capital;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5249. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.