Evidence Generation
Asia
Evidence Generation
Asia
Despite the widespread availability of microfinance, most entrepreneurs in low- and middle-income countries remain capital constrained, which significantly hinders business growth and performance. While research shows that capital injections through grants can yield positive benefits for entrepreneurs' businesses and households,1 this approach is not financially sustainable or scalable. Traditional microfinance loans, though more sustainable, have demonstrated limited effectiveness in spurring business growth on average.2
In India, many women entrepreneurs who have successfully repaid multiple microfinance loans and built strong credit histories find themselves constrained by loan size limits—typically unable to access the larger capital needed to purchase fixed assets, expand operations, or hire employees. These women who have proven their creditworthiness and business acumen lack access to the next tier of financing that could enable substantial business growth that standard microfinance products cannot provide. They may also benefit from flexible repayment structures that account for household responsibilities and seasonal business fluctuations. This leaves open a crucial research question: Can access to appropriately sized and structured credit products enable high-potential women entrepreneurs who have demonstrated business capability and financial reliability to break out of subsistence-level operations?
In collaboration with Sanghamithra Rural Financial Services and J-PAL South Asia, researchers are conducting a randomized evaluation in Coimbatore, Tamil Nadu, India to measure whether providing larger, flexible loans to credit-ready women entrepreneurs can improve their business performance, household income, and economic empowerment.
Researchers will provide eligible borrowers—those who have taken near the maximum standard loan size and now seek larger loans—with access to Thozhil Valarchikana Kadan (TVK) graduation loans. These loans range from USD 2,400 to 3,600 (two-to-three times larger than standard microfinance loans), with flexible features including choice of repayment frequency, an optional three-month grace period where only interest is due, and loan terms of one to three years at 22 percent APR. Loans are intended for purchasing fixed assets to expand existing businesses or start new businesses based on developed skills.
A total of 1,000 eligible and interested borrowers will be randomly assigned to be offered either the TVK loan or serve as a comparison group and offered only the standard smaller microfinance loan product.
Researchers will measure impacts on business performance (profits, revenues, assets, employees), household livelihoods and wellbeing (income, assets, psychological wellbeing), women's empowerment (decision-making power, labor force participation norms), and ripple effects on customers and employees.
Results will be available in 2027.
1. Hussam, Reshmaan, Natalia Rigol, and Benjamin N. Roth. "Targeting high ability entrepreneurs using community information: Mechanism design in the field." American Economic Review 112, no. 3 (2022): 861-898.
Crépon, Bruno, Mohamed El Komi, and Adam Osman. "Is it who you are or what you get? Comparing the impacts of loans and grants for microenterprise development." American Economic Journal: Applied Economics 16, no. 1 (2024): 286-313.
2. Banerjee, Abhijit, Dean Karlan, and Jonathan Zinman. "Six randomized evaluations of microcredit: Introduction and further steps." American Economic Journal: Applied Economics 7, no. 1 (2015): 1-21.
