“When Microcredit Hurts: Over-indebtedness in the Covid-19 Pandemic”
With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Abstract
Can a credit injection prior to an economic shock hurt small business outcomes? Exploiting a microfinance institution’s surprise credit freeze at the onset of Chile’s 2020 Covid shutdown, we compare small business owners who applied for a loan just before the freeze versus those who applied just afterwards, with the former group receiving about USD 600 additional credit just prior to the shutdown. Three months later, businesses that received credit were 35 percentage points (61%) less likely to be open, and had on average USD 167 (58%) lower profits per month. Three years later, they are 11 percentage points (25%) less likely to be a borrower at the microfinance institution, and we present suggestive evidence that their businesses are still less likely to be open. In survey questions, the business owners who took loans just before the shutdown report that they would not have done so if they had known about the impending shutdown, and they would have spent the loan differently (e.g. had they known about the shutdown they would have spent the money on non-perishable staples). We draw implications for policy.
About the speaker
Benjamin N. Roth is the Purnima Puri and Richard Barrera Associate Professor of Business Administration in the Entrepreneurial Management Unit.
Language
English.
This is a free event. Registration is mandatory.
Cold lunches are provided to registered participants.
In partnership with
Supported by the Luxembourg National Research Fund (FNR) 17984041