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on Microfinance |
| By: | Islam, Asadul; Choe, Chongwoo |
| Abstract: | Microcredit has been shown to be effective in reducing poverty in many developing countries. However, less is known about its effect on human capital formation. In this paper, we develop a model examining the relation between microcredit and child labour. We then empirically examine the impact of access to microcredit on children’s education and child labour using a new and large data set from rural Bangladesh. We address the selection bias using the instrumental variable method where the instrument relies on an exogenous variation in treatment intensity among households in different villages. The results show that household participation in a microcredit program may increase child labour and reduce school enrolment. The adverse effects are more pronounced for girls than boys. Younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely. Our findings remain robust to different specifications and methods, and when corrected for various sources of selection bias. |
| Keywords: | Microcredit; child labour; school enrolment; instrumental variable; treatment effect |
| JEL: | A20 C21 O12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16842&r=mfd |
| By: | Fehr, Ernst (University of Zurich); Zehnder, Christian (University of Lausanne) |
| Abstract: | The evidence suggests that relational contracting and legal rules play an important role in credit markets but on the basis of the prevailing field data it is difficult to pin down their causal impact. Here we show experimentally that relational incentives are a powerful causal determinant for the existence and performance of credit markets. In fact, in the absence of legal enforcement and reputation formation opportunities the credit market breaks down almost completely while if reputation formation is possible a stable credit market emerges even in the absence of legal enforcement of debt repayment. Introducing legal enforcement of repayments causes a further significant increase in credit market trading but has only a surprisingly small impact on overall efficiency. The reason is that legal enforcement of debt repayments weakens relational incentives and exacerbates another moral hazard problem in credit markets – the choice of inefficient high-risk projects. |
| Keywords: | credit markets, relationship lending, reputation formation, legal enforcement |
| JEL: | C91 G21 G28 L14 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4351&r=mfd |
| By: | Kartik B. Athreya; Xuan S. Tam; Eric R. Young |
| Abstract: | How might society ensure the allocation of credit to those who lack meaningful collateral? Two very different options that have each been pursued by a variety of societies through time and space are (i) relatively harsh penalties for default and, more recently, (ii) loan guarantee programs that allow borrowers to default subject to moderate consequences and use public funds to compensate lenders. The goal of this paper is to provide a quantitative statement about the relative desirability of these responses. Our findings are twofold. First, we show that under a wide array of circumstances, punishments harsh enough to ensure all debt is repaid improve welfare. With respect to loan guarantees, our findings suggest that such efforts are largely useless at best, and substantially harmful at worst. Generous loan guarantees virtually ensure substantially higher taxes — with transfers away from the non-defaulting poor to the defaulting middle-class — and greater deadweight loss from high equilibrium default rates. Taken as a whole, our findings suggest that current policy toward default is likely to be counterproductive, and that guarantees for consumption loans are not the answer. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:09-11&r=mfd |