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Microfinance and Diversification

Author

Listed:
  • Bandiera, Oriana
  • Burgess, Robin
  • Deserranno, Erika
  • Morel, Ricardo
  • Rasul, Imran
  • Sulaiman, Munshi
  • Thiemel, Jack

Abstract

The bulk of the world's extreme poor work in subsistence agriculture. Diversification out of this activity is often seen as the sine qua non of economic development. We evaluate whether the roll-out of a mainstay development intervention - microfinance - into poor, agricultural and largely unbanked populations in rural Uganda helps borrowers diversify into non-agricultural labor activities. The new microfinance product is targeted to women, and differs from existing sources of formal and informal credit in that it allows them to borrow larger amounts but has inflexible repayment dates and the use of funds is monitored. We find that the arrival of microfinance enables women to diversify out of agriculture and into service-based activities such as small-scale trading. This low-level structural change, however, is not transformative in that it does not lead - at least after two years - to significant uplifts in earnings, consumption, savings, investment and overall wealth.

Suggested Citation

  • Bandiera, Oriana & Burgess, Robin & Deserranno, Erika & Morel, Ricardo & Rasul, Imran & Sulaiman, Munshi & Thiemel, Jack, 2022. "Microfinance and Diversification," CEPR Discussion Papers 17081, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17081
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    Other versions of this item:

    • Oriana Bandiera & Robin Burgess & Erika Deserranno & Ricardo Morel & Imran Rasul & Munshi Sulaiman & Jack Thiemel, 2022. "Microfinance and Diversification," Economica, London School of Economics and Political Science, vol. 89(S1), pages 239-275, June.

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    2. Balasubramanian, Pooja & Ibanez, Marcela & Khan, Sarah & Sahoo, Soham, 2024. "Does women's economic empowerment promote human development in low- and middle-income countries? A meta-analysis," World Development, Elsevier, vol. 178(C).
    3. Jennifer G. Fronda, 2024. "Empowering Nueva Ecija’s Farmers through Microfinancing: A Blueprint for Enhancing Financial Literacy and Agricultural Resilience," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 123-130, July.
    4. M Lang & J Seither, 2022. "The Economics of Women s Entrepreneurship: Evidence from Building Skills in Uganda," Documentos de Trabajo 20563, Universidad del Rosario.

    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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