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 language | English |
|---|---|
| Pages (from-to) | 93-107 |
| Number of pages | 15 |
| Journal | Journal of Development Effectiveness |
| Volume | 14 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2022 |
Bibliographical note
Funding Information:We thank the International Institute of Social Studies, Erasmus University Rotterdam for financial support. This paper is based on the first author’s PhD thesis submitted to Erasmus University Rotterdam in 2016.
Publisher Copyright:
© 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 1 No Poverty -
SDG 5 Gender Equality -
SDG 8 Decent Work and Economic Growth -
SDG 9 Industry, Innovation, and Infrastructure
Research programs
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