Returns to Interest-free Microcredit: Evidence from a Randomised Experiment in Pakistan

Maazullah Khan, Arjun S. Bedi*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Downloads (Pure)

Abstract

The existing experimental evidence on returns to capital is based on randomisation of either interest-bearing loans or grants. This paper reports on a field experiment conducted in Pakistan in which interest-free loans were randomly provided to microenterprises. The study was conducted in co-operation with Akhuwat Islamic Microfinance. We find that treatment leads to a substantial increase in working capital and in business profits. Using randomised treatment as an instrument for capital, we find average monthly returns to capital of 8.6 to 11.9 percent a month. These returns are higher than the interest rates charged by conventional microfinance institutions in Pakistan.

Original languageEnglish
Pages (from-to)93-107
Number of pages15
JournalJournal of Development Effectiveness
Volume14
Issue number2
DOIs
Publication statusPublished - 12 Aug 2021

Fingerprint

Dive into the research topics of 'Returns to Interest-free Microcredit: Evidence from a Randomised Experiment in Pakistan'. Together they form a unique fingerprint.

Cite this