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Too Vulnerable for Microfinance? Risk and Vulnerability as Determinants of Microfinance Selection in Lima

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  • Sarah Pearlman

Abstract

Despite dramatic microfinance growth, formal credit use by poor households remains low. There is increasing evidence of muted demand, suggesting a link between the risk of projects financed by credit and households' risk management. This article analyses these links using panel data on urban microentrepreneurs in Lima, based on a model in which the risk of projects and the ability to manage risk determine if a household seeks microfinance. Controlling for unobservable traits like risk aversion and skill, results suggest that more vulnerable entrepreneurs are significantly less likely to use microfinance than their less vulnerable counterparts.

Suggested Citation

  • Sarah Pearlman, 2012. "Too Vulnerable for Microfinance? Risk and Vulnerability as Determinants of Microfinance Selection in Lima," Journal of Development Studies, Taylor & Francis Journals, vol. 48(9), pages 1342-1359, September.
  • Handle: RePEc:taf:jdevst:v:48:y:2012:i:9:p:1342-1359
    DOI: 10.1080/00220388.2012.693170
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    Cited by:

    1. Mukhopadhyay, Jyoti Prasad, 2014. "Does access to microfinance affect consumption inequality? :evidence from a randomized controlled trial in Andhra Pradesh, India," MPRA Paper 58674, University Library of Munich, Germany.
    2. Nargiza Alimukhamedova & Randall Filer & Jan Hanousek, 2015. "The Importance of Geographic Access for the Impact of Microfinance," CESifo Working Paper Series 5433, CESifo Group Munich.
    3. Marc Labie & Carolina Laureti & Ariane Szafarz, 2016. "Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance," Working Papers CEB 15-020, ULB -- Universite Libre de Bruxelles.

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