Microfinance and Poverty Alleviation

Abstract: We use an RCT to analyze the impact of microcredit on poverty reduction. The study population consists of loan applicants to a large microfinance institution in Bosnia and Herzegovina who would have been rejected through regular screening. Access to credit allowed borrowers to start and expand small-scale businesses. THe re is little evidence that this lead to net increases in household income. Households that already had a business and where the borrower had more education, ran down savings, presumably to complement the loan and achieve the minimum investment amount. In less-educated households, where assets were low consumption went down instead. For these households the labor supply of teenage children aged 16-19 increased, and their school attendance declined.