We conduct a field experiment offering graduated microcredit clients the opportunity 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 contracts: 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 rationalizes our results; this highlights the potential for welfare improvements through large capital injections that are financially sustainable for microfinance institutions.

Simon QuinnMuhammad MekiKashif Zaheer MalikFaisal Bari
Publication type: 
Working Paper
Date: 
January 01, 2021
Country: 

Research