Household Matters: Returns to Capital Among Female Microentrepreneurs

Tuesday, 14 October, 2014
A classic result in the microenterprise literature is that easing financial constraints benefits male but not female entrepreneurs. In this paper, Field, Pande, and Rigol show that easing financial constraints of female entrepreneurs does in fact result in significant growth in household income, but only when income from all enterprises within a household are taken into account. Their analysis draws upon a field experiment conducted with microfinance clients in Kolkata in 2007 (Field, Pande, Papp, and Rigol, 2013). Female microfinance clients were randomly assigned either the classic microfinance contract or a contract that gave them greater repayment flexibility. They show that if they estimate the returns to improved financial access (i.e. being given a more flexible contract) at the enterpise-level then they replicate earlier studies. That is, in households that receive the grace period contract male-owned enterprises but not female-owned enterprises report higher profits observe a significant disparity between returns for male- and female-owned enterprises. However, once they aggregate profits to the household-level they observe that households with a female enterprise are as likely to benefit from improved financial access as households with a male enterprise.