The Macroeconomics of Microfinance
The paper builds a general-equilibrium model with heterogeneous agents and financial frictions to evaluate the economy-wide effects of large-scale microfinance programs. It finds that while microfinance raises the incomes of marginal entrepreneurs, partial-equilibrium estimates overstate aggregate gains because general-equilibrium wage and capital responses redistribute benefits. The aggregate effects on output and total factor productivity are modest, but the welfare and distributional consequences can be substantial, especially for poorer households.