MDGs and Microcredit: An Empirical Evaluation for Latin American Countries

This study uses household survey data from a number of Latin American countries to investigate the degrees and effects of the access to credit on the income and education of poor households. The study aims to:

• Characterize individuals and firms receiving credit;
• Quantify the effects of such loans on education and income;
• Simulate different microcredit policies as a policy instrument to reach the Millennium Development Goals (MDGs) of:
  • Eradicating poverty;
  • Access to education for all;
  • Empowerment of women.

The study runs multi-variate regressions to estimate the impact of credit to the poor on their labor income and the probability of their children staying on in school. The study finds that:

• Less than 10% of poor households in the sample have access to credit;
• Credit is positively linked to increase in income and attainment of education;
• The increase in probability of completing secondary school is on average higher than for primary school;
• Estimated costs are not very high in most cases.

The study concludes that:

• Microcredit might be a relatively powerful, but still limited tool for meeting the MDGs;
• Microcredit schemes should not be thought of as a substitute but as a complement to other long-term policies.