Too Vulnerable for Microfinance? Risk and Vulnerability as Determinants of Microfinance Selection in Lima
Pearlman, S.
Journal of Development Studies 48(9): 1342-1359
2012
ISSN/ISBN: 0022-0388 DOI: 10.1080/00220388.2012.693170Document Number: 201883
Despite dramatic microfinance growth, formal credit use by poor households remains low. There is increasing evidence of muted demand, suggesting a link between the risk of projects financed by credit and households' risk management. This article analyses these links using panel data on urban microentrepreneurs in Lima, based on a model in which the risk of projects and the ability to manage risk determine if a household seeks microfinance. Controlling for unobservable traits like risk aversion and skill, results suggest that more vulnerable entrepreneurs are significantly less likely to use microfinance than their less vulnerable counterparts.