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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol, Emmanuelle / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 16, Issue 1

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

The Real Cost of Credit Constraints: Evidence from Micro-finance

Renuka Sane / Susan Thomas
Published Online: 2015-11-03 | DOI: https://doi.org/10.1515/bejeap-2014-0154

Abstract

The paper studies the effect of a law that banned micro-credit lending in the state of Andhra Pradesh in India. Regions in Andhra Pradesh are matched to regions that did not face the ban. A difference-in-difference estimation of changes in matched regions is used to establish a causal impact on average household consumption in the region. The results show that the average household consumption in the ban-affected regions dropped by 15% immediately after the ban compared to the matched regions, and persisted for four quarters. The result is robust to cross-sectional variations in regional exposure to micro-finance prior to the ban, variation in rural and urban locations and variations in matching strategy. The analysis points to a ban as a sub-optimal intervention to improve customer welfare.

Keywords: micro-credit; consumption smoothing; household finance; regulatory ban; natural experiment

JEL: D14; G21; G28

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About the article

Published Online: 2015-11-03

Published in Print: 2016-01-01


Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 16, Issue 1, Pages 151–183, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2014-0154.

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