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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.

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File URL: http://128.118.178.162/eps/dev/papers/0403/0403005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0403005.

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Length: 35 pages
Date of creation: 22 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpdc:0403005

Note: Type of Document - pdf; pages: 35. 35 pages, pdf document
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Web page: http://128.118.178.162

Related research

Keywords: Consumption smoothing; Micro credit; Euler equation;

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Cited by:
  1. Xavier Gine & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2006. "Microfinance games," Framed Field Experiments 00150, The Field Experiments Website.
  2. 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.
  3. Dean Karlan & Jonathan Zinman, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Working Papers 108, Center for Global Development.
  4. 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.
  5. Vittoria Cerasi & Lucia Dalla Pellegrina, 2009. "Solidarity Behind Microfinance," Working Papers 20091101, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
  6. Karlan, Dean S. & Zinman, Jonathan, 2007. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," CEPR Discussion Papers 6071, C.E.P.R. Discussion Papers.

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