| Abstract: |
We conduct a field experiment offering graduated microcredit clients the
opportu-nity 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 con¬tracts: 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
ra¬tionalises our results; this highlights the potential for welfare
improvements through large capital injections that are financially sustainable
for microfinance institutions. |