Microfinance, Poverty and Education

We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour supply, and education in Bosnia and Herzegovina. The study population consists of loan applicants that regular screening would have marginally rejected. Access to credit allowed borrowers to start and expand small-scale businesses. 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. However, in less-educated households consumption went down. A key new finding is a substantial increase in the labor supply of children aged 16-19 year old together with a reduction in their school attendance, raising important questions about the unintended intergenerational consequences of relaxing liquidity constraints for self-employment and business creation or expansion.