Journal Article

Getting Credit to High Return Microentrepreneurs: The Results of an Information Intervention

Suresh de Mel, David McKenzie and Christopher Woodruff

in The World Bank Economic Review

Volume 25, issue 3, pages 456-485
Published in print October 2011 | ISSN: 0258-6770
Published online May 2011 | e-ISSN: 1564-698X | DOI: https://dx.doi.org/10.1093/wber/lhr023
Getting Credit to High Return Microentrepreneurs: The Results of an Information Intervention

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Show all results sharing these subjects:

  • Banking
  • Production and Organizations
  • Information, Knowledge, and Uncertainy
  • Economic Development

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Small-scale entrepreneurs typically cite access to finance as the most important constraint to growth. Recent randomized experiments have shown the return to capital to be very high for the average microenterprise in Sri Lanka. An intervention was designed to improve access to credit among these high-return microenterprises without subsidizing interest rates or requiring group lending. The intervention consisted of information sessions providing details of the microfinance loan product offered by a regional development bank and a reduction from two to one in the number of personal guarantors required for these loans. Ten percent of the microenterprises invited to the information meetings received a new loan, doubling the proportion of firms receiving loans over this period. However, the loans do not appear to be going to particularly high-return firms but rather to firms with more household assets. Many more firms would like loans but are constrained by an inability to find personal guarantors and by other bureaucratic procedures. The results suggest that information alone is unlikely to be enough for most firms and point to the need for credit bureaus that cover microfinance loans and for continuing innovation in loan products that can reach the urban microenterprise sector.

Keywords: G21; D24; D83; O12

Journal Article.  11981 words.  Illustrated.

Subjects: Banking ; Production and Organizations ; Information, Knowledge, and Uncertainy ; Economic Development

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