Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/170949 
Year of Publication: 
2017
Series/Report no.: 
IZA Discussion Papers No. 10965
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The global microfinance movement is driven by the claim that once poor micro-entrepreneurs are provided access to capital, they will be able to generate high returns. The existing evidence on returns to capital is mixed and too limited to substantiate this claim. This paper reports on a field experiment conducted in Pakistan, in co-operation with Akhuwat microfinance, in which interest free loans were randomly provided to microenterprises. We find that treatment leads to a significant increase in working capital and in business profits. Using randomized treatment as an instrument for capital, we find average monthly returns to capital of 8.6 to 11.9 a month. These returns are substantially higher than the interest rates charged by microfinance institutions in Pakistan.
Subjects: 
returns to capital
microfinance
microenterprises
randomized experiment
Akhuwat microfinance
JEL: 
O17
O16
C93
Document Type: 
Working Paper

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