Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs?

By Abhijit Banerjee, Emily Breza, Esther Duflo, Cynthia Kinnan. Social Science Research Network, 2019

135 citations recorded by the source corpus.

Can microcredit help unlock a poverty trap for some people by putting their businesses on a different trajectory? Could the small microcredit treatment effects often found for the average household mask important heterogeneity? In Hyderabad, India, we find that “gung ho entrepreneurs” (GEs), households who were already running a business before microfinance entered, show persistent benefits that increase over time. Six years later, the treated GEs own businesses that have 35% more assets and generate double the revenues as those in control neighborhoods. We find almost no effects on non-GE households. A model of technology choice in which talented entrepreneurs can access either a diminishing-returns technology, or a more productive technology with a fixed cost, generates dynamics matching the data. These results show that heterogeneity in entrepreneurial ability is important and persistent. For talented but low-wealth entrepreneurs, short-term access to credit can indeed facilitate escape from a poverty trap.

Subfields: Business and International Management, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/1c92801a4adee684717e868f42d1fa8ce8df878a

Citations in the corpus

• Why do people stay poor? (2020, unknown): “…impact of microfinance (Banerjee et al., 2015a; Meager, 2019) but a large effect on a small group of households that already run a successful business (Banerjee et al., 2019).42 We then turn to our structural model to to estimate the value of transfers needed to reduce misallocation to zero.”
• Changes in Social Network Structure in Response to Exposure to Formal Credit Markets (2021, unknown): “Banerjee et al .”