Is Microcredit Effective? It Depends on the Context: New Results from a Study in Bolivia

This study examines the effect of a microcredit program from a Bolivian microfinance institution. We use a cross-sectional dataset of nearly 2000 households. To identify the impact of the microcredit loan on various economic outcomes, we rely on the expansion plans provided by the Bolivian microfinance institute, which enables us to apply a double difference model in space. By comparing current borrowers with potential future borrowers, we control for self-selection bias and programme placement bias. While limited impacts are found on the sample as a whole, substantial differences are found when investigating the two regions in the sample separately. In one region, we observe that the new loans do not increase the total outstanding loans of the households, and thus, little impact are to be expected. In the second region, the loan finances a shift in agricultural activities towards business activities, as we observe a negative impact on agriculture results, but a positive impact on business revenues. This study stresses the importance of context, in that the impacts of microcredit even differ between regions within countries, e.g., depending on culture, experience, opportunities, welfare level, and complementary support (e.g., roads, markets, healthcare).