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Long-term benefits of membership in microfinance programmes

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  • Nidhiya Menon

    (Department of Economics & International Business School, Brandeis University, Waltham, MA, USA)

Abstract

This study studies the benefits of membership in microfinance programmes, and examines whether membership in these programmes is an effective instrument in smoothing inter-seasonal consumption. We hypothesise that the benefits to participation accrue differentially over time, as more experienced participants are better equipped on their own to minimise 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, 1 year of membership reduces the percentage change in per capita consumption, caused by a unit shock, by 6 per cent. We present simulation results confirming that as length of membership increases, the 'certainty equivalent' of the participant decreases. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Nidhiya Menon, 2006. "Long-term benefits of membership in microfinance programmes," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(4), pages 571-594.
  • Handle: RePEc:wly:jintdv:v:18:y:2006:i:4:p:571-594
    DOI: 10.1002/jid.1278
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    References listed on IDEAS

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    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. M. M. Pitt & S. R. Khandker, 2002. "Credit Programmes for the Poor and Seasonality in Rural Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 39(2), pages 1-24.
    3. repec:pri:rpdevs:morduch_microfinance_poor is not listed on IDEAS
    4. Mark Pin & Shahidur Khandker & Signe-Mary Mckernan & M. Latif, 1999. "Credit programs for the poor and reproductive behavior in low-income countries: Are the reported causal relationships the result of heterogeneity bias?," Demography, Springer;Population Association of America (PAA), vol. 36(1), pages 1-21, February.
    5. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
    6. Shahidur R. Khandker, 2005. "Microfinance and Poverty: Evidence Using Panel Data from Bangladesh," World Bank Economic Review, World Bank Group, vol. 19(2), pages 263-286.
    7. Foster, Andrew D & Rosenzweig, Mark R, 1996. "Technical Change and Human-Capital Returns and Investments: Evidence from the Green Revolution," American Economic Review, American Economic Association, vol. 86(4), pages 931-953, September.
    8. Mark M. Pitt & Shahidur R. Khandker & Omar Haider Chowdhury & Daniel L. Millimet, 2003. "Credit Programs for the Poor And the Health Status of Children in Rural Bangladesh," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 87-118, February.
    9. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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    Cited by:

    1. Nidhiya Menon & Yana van der Meulen Rodgers, 2011. "How Access to Credit Affects Self-employment: Differences by Gender during India's Rural Banking Reform," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 48-69.
    2. Berhane, Guush & Gardebroek, Cornelius, 2012. "Assessing the long-term impact of microcredit on rural poverty: Does the timing and length of participation matter?," ESSP working papers 43, International Food Policy Research Institute (IFPRI).
    3. Han, Linghui & Hare, Denise, 2013. "The link between credit markets and self-employment choice among households in rural China," Journal of Asian Economics, Elsevier, vol. 26(C), pages 52-64.
    4. Jennings, Larissa & Shore, Deborah & Strohminger, Nancy & Allison, Burgundi, 2015. "Entrepreneurial development for U.S. minority homeless and unstably housed youth: A qualitative inquiry on value, barriers, and impact on health," Children and Youth Services Review, Elsevier, vol. 49(C), pages 39-47.
    5. Md. Abul Basher, 2010. "Promotional role of microcredit: Evidence from the Grameen Bank of Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 521-529.
    6. 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.
    7. Fulford, Scott L., 2013. "The effects of financial development in the short and long run: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 104(C), pages 56-72.

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