Asset-based Finance for Microenterprises in Pakistan

https://www.poverty-action.org/study/asset-based-finance-microenterprises-pakistan

Research question

In this project, we investigate whether a lease-based product, in which microfinance institution and microenterprise share equity in an asset, can provide a more flexible form of financing to help stimulate growth of microenterprises.

Research summary and methodology

We are working with Akhuwat, one of the largest microfinance institutions in Pakistan, and based in Lahore. We work with graduated clients, who have successfully completed a previous loan cycle, and have expressed an interest in expanding their business with the purchase of a fixed asset. We randomly assign 900 microenterprises to a control and two treatment groups. In the treatment groups, Akhuwat provides financing for the asset using a joint-ownership structure; in one group, we use a more conventional fixed repayment schedule, and in the other we use a more flexible structure. We will evaluate take-up of the two products and impact on the investment behavior and performance of microenterprises, including whether there is any differential effect based on behavioural characteristics such as risk and time preferences.

Publications and output

Project implementation is ongoing.