Long-term benefits of membership in microfinance programmes
Article first published online: 10 APR 2006
Copyright © 2006 John Wiley & Sons, Ltd.
Journal of International Development
Volume 18, Issue 4, pages 571–594, May 2006
How to Cite
Menon, N. (2006), Long-term benefits of membership in microfinance programmes. J. Int. Dev., 18: 571–594. doi: 10.1002/jid.1278
- Issue published online: 10 APR 2006
- Article first published online: 10 APR 2006
- Hewlett and Mellon foundations
- consumption smoothing;
- micro credit;
- Euler equations
This study studies the benefits of membership in microfinance programmes, and examines whether membership in these programmes is an effective instrument in smoothing inter-seasonal consumption. We hypothesise that the benefits to participation accrue differentially over time, as more experienced participants are better equipped on their own to minimise per capita consumption fluctuations. Using an Euler equation approach, we show that consumption differentials across seasons are inversely related to length of membership. Estimates from the gender-stratified model suggest that for a female participant, 1 year of membership reduces the percentage change in per capita consumption, caused by a unit shock, by 6 per cent. We present simulation results confirming that as length of membership increases, the ‘certainty equivalent’ of the participant decreases. Copyright © 2006 John Wiley & Sons, Ltd.