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Asset-based microfinance for Microenterprises: Evidence from Pakistan

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  • Faisal Bari
  • Kashif Malik
  • Muhammad Meki
  • Simon Quinn

Abstract

We conduct a field experiment offering graduated microcredit clients the opportu-nity to finance a business asset worth four times their previous borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero-interest loan. We find large, significant and persistent effects from asset finance con¬tracts: treated microenterprise owners run larger businesses and enjoy higher profits; consequently, household consumption increases, particularly on food and children’s education. A dynamic structural model with non-convex capital adjustment costs ra¬tionalises our results; this highlights the potential for welfare improvements through large capital injections that are financially sustainable for microfinance institutions.

Suggested Citation

  • Faisal Bari & Kashif Malik & Muhammad Meki & Simon Quinn, 2021. "Asset-based microfinance for Microenterprises: Evidence from Pakistan," CSAE Working Paper Series 2021-03-02, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2021-03-02
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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