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How Much do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance
Abhijit Banerjee1, Esther Duflo1, Richard Hornbeck2
1MIT.
Economica
|October 31, 2018
Summary
Microfinance offers modest effects for new clients, with similar impacts on experienced borrowers. This study found no average effect on business or consumption, even for long-term users of microfinance services.
Area of Science:
- Development Economics
- Financial Inclusion
Background:
- Existing research on microfinance impacts often focuses on new clients, potentially underestimating long-term effects.
- The longer-run potential and ongoing gains for experienced borrowers remain less understood.
Purpose of the Study:
- To estimate the impacts of microfinance on experienced borrowers.
- To assess if prior studies understate microfinance's true effects.
Main Methods:
- Utilized a randomized controlled trial design by examining an episode of increased fees for existing microfinance clients.
- Leveraged a natural experiment where a mandatory, but useless, health insurance policy was introduced, leading to a significant decline in loan renewal.
Main Results:
- Microfinance participation among experienced borrowers showed impacts similar to those for new clients, with no average effect on business outcomes or household consumption.
- Clients who started businesses before microfinance entry experienced a decline in business outcomes upon losing access, yet remained willing to forgo microfinance.
Conclusions:
- The study suggests that microfinance may not yield significant average benefits for experienced borrowers, contrary to potential expectations of cumulative gains.
- Findings align with previous research indicating limited average impacts, even for long-term participants.
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