The Controversial Effects of Microfinance on Child Schooling: A Retrospective Approach

Analyzing effects of microfinance on borrowers
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This paper proposes an original approach to examine the impact of microfinance on children’s education.

Research agencies or donors that need to empirically assess the impact of microfinance on children’s education face problems of lack of availability of panel data and selection bias. The paper proposes to solve this problem by combining retrospective panel data, fixed effects and comparison between pre- and post-treatment trends. The study applies this approach to a sample of microfinance borrowers from two districts of Buenos Aires with different average income levels. Findings include:

  • Impact of microfinance on children’s education is robust and significant only in the district with higher standard of living and for children living at a distance from school;
  • Microfinance generates positive effects on child schooling only when parents’ income is above a certain threshold;
  • Effect of microfinance depends on parental income and schooling costs.

Bank-borrower relationship may provide resources that compensate transport costs for families that live far away from schools, but is ineffective if income levels are below the threshold under which parents are forced by necessity not to send children to school.

About this Publication

By Becchetti, L. & Conzo, P.