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Consumption Smoothing in Micro Credit Programs

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  • Nidhiya Menon

    (Brandeis University)

Abstract

This paper studies the benefits of participation in micro credit programs, and examines whether membership in these programs is an effective instrument in smoothing inter-seasonal consumption. We hypothesize that the benefits to participation accrue differentially over time, as more experienced participants are better equipped on their own to minimize per capita consumption fluctuations. Using an Euler equation approach, we show that consumption differentials across seasons are inversely related to length of membership. Estimates from the gender-stratified model suggest that for a female participant, one year of membership reduces the percentage change in per capita consumption, caused by a unit shock, by 6%. We present simulation results confirming that as length of membership increases, the 'certainty equivalent' of the participant decreases.

Suggested Citation

  • Nidhiya Menon, 2004. "Consumption Smoothing in Micro Credit Programs," Development and Comp Systems 0403005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpdc:0403005
    Note: Type of Document - pdf; pages: 35. 35 pages, pdf document
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/dev/papers/0403/0403005.pdf
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    Cited by:

    1. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
    2. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    3. Dean S. Karlan & Jonathan Zinman, 2008. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," American Economic Review, American Economic Association, vol. 98(3), pages 1040-1068, June.
    4. 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.
    5. Zinman, Jonathan, 2010. "Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 546-556, March.
    6. Vittoria Cerasi & Lucia Dalla Pellegrina, 2009. "Solidarity Behind Microfinance," Working Papers 20091101, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.

    More about this item

    Keywords

    Consumption smoothing; Micro credit; Euler equation;
    All these keywords.

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Political Economy and Comparative Economic Systems

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