The Impact of Demographic and Design Characteristics on the Effectiveness of Microcredit
Open Access
- Author:
- Marsho, Hannah
- Area of Honors:
- Economics
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Bee Yan Roberts, Thesis Supervisor
Russell Paul Chuderewicz, Thesis Honors Advisor - Keywords:
- microcredit
economics
development
loan performance
poverty - Abstract:
- Microcredit has provided economists with the opportunity to study the provision of reliable credit access to the poor in developing countries, a group who have long been shunned by formal lending institutions. It could serve as an important tool for alleviating poverty through providing the poor with the liquidity they need to invest in their own micro-enterprises or through creating an avenue for saving and consumption smoothing. Though previous research has achieved mixed economic findings with the traditional structure of microcredit, newer research has begun to investigate how microfinance institutions (MFIs) can begin to better evaluate and target microcredit programs for the benefit of MFIs, borrowers, and related stakeholders. This thesis aims to further explore how borrower demographic and program design characteristics play an important role in determining various economic, business, and loan outcomes. The recognition and development of these relationships could be key to further testing, targeting, and innovating in microcredit programs. This thesis finds statistically significant relationships between higher levels of education, business ownership status, repayment flexibility via a two-month grace period, longer group meeting lengths, business capital, and household income with improved economic and business outcomes as well as better loan performance. It also finds that microcredit loans are mainly used for business creation and investment but using microcredit loans for other purposes such as human capital investments or food and durables consumption are also prevalent, specifically among non-business owners. These findings could help to evaluate the effectiveness of microcredit and, more importantly, indicate which borrower demographic and program design characteristics require more research by the larger economic community.