Don’t Fear the Reaper: Analyzing the Effect of Health on Microfinance Participation

Addressing the effect of risk mitigation on the willingness to borrow loans
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This study intends to explain the low participation rates among eligible borrowers in The Abdul Latif Jameel Poverty Action Lab (JPAL)’s analysis of microcredit efficacy. This analysis, conducted by JPAL, was carried out using a Randomized Control Trial (RCT) conducted in Spandana, an MFI based out of Hyderabad, India. The paper studies the relationship between health and an individual’s willingness to participate in microfinance based on JPAL’s data. It tries to establish the relationship with the help of an empirical model that accounts for both formal and informal risk mitigation tactics. Key findings include:
  • Summary statistics and early regression analysis allude to a significant relationship between health and an individual’s willingness to borrow;
  • Regression analysis confirms that there is 3% point increase in microfinance participation among those individuals deemed healthy;
  • Disparity in participation between healthy and unhealthy demographics coincides with the notion that risk impedes the pursuit of long term goals;
  • Regression analysis suggests that being ‘healthy’ is correlated with a 2.9% increase in willingness to participate in microfinance;
  • Reduction in statistical significance from introduction of clustered standard error suggests correlation between peer-groups and propensity to invest.

About this Publication

By Thompson, S.