Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India (with Erica Field, John Papp and Rohini Pande. American Economic Review, October 2013, Vol 106.)
Abstract: Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty.
Friendship at Work: Can Peer Effects Catalyze Female Entrepreneurship? (with Seema Jayachandran, Rohini Pande and Erica Field. American Economic Journal: Economic Policy, 8(2): 125-53.)
Abstract: Does the lack of peers contribute to the observed gender gap in entrepreneurial success? A random sample of customers of India’s largest women's bank was offered two days of business counseling, and a random subsample was invited to attend with a friend. The intervention significantly increased participants' business activity, but only if they were trained with a friend. Those trained with a friend were more likely to have taken out business loans, were less likely to be housewives, and reported increased business activity and higher household income, with stronger impacts among women subject to social norms that restrict female mobility.
Do Group Dynamics Influence Social Capital Gains Among Microfinance Clients? Evidence from a Randomized Experiment in Urban India (with Benjamin Feigenberg, Erica Field, Rohini Pande, and Shayak Sarkar. Journal of Policy Analysis and Management, 33.4 (2014): 932-949.)
Abstract: As an intrinsic part of the classic microfinance model, group meetings are intended to employ social capital to ensure timely repayment. Recent research suggests that more frequent meetings can increase social capital among first-time clients. Using randomized variation in group meeting frequency for 174 microfinance groups in India, we demonstrate that social capital gains associated with more frequent meetings continue to accrue across multiple lending cycles. However, these effects are reduced when group members differ in their borrowing history. In addition, clients who start with low levels of empowerment report higher social capital gains when matched with similar clients. We discuss how current microfinance policy debates overlook the creation of social capital, including through repayment meeting frequency, and we encourage regulators to undertake a holistic understanding of microfinance's impacts.