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The influence of microfinance on the education decisions of rural households: evidence from Bolivia

Increased access to education will be key in any efforts to improve the quality of rural life and the welfare of the next generation in developing countries. Microfinance programs have been among components of strategies for poverty alleviation that have attempted to address this challenge. This essay uses data from three different surveys of households of clients of microfinance organizations (MFOs) in Bolivia to examine several channels through which microfinance may exert an influence on education outcomes. Five channels are identified, designated as income, risk-management, child-labor demand, gender, and information effects.
Based on an econometric specification that explains schooling decisions at the household level, regression models are used to examine determinants of education achievements and to make inferences about the potential influence of microfinance, through these channels, on those achievements.
The results challenge usual assumptions in microfinance programs. In particular, for some ranges of household income and some types of borrowers, access to loans has conflicting effects on school enrollment. On the one hand, loans increase the demand for education as a result of income, risk-management, gender, and information effects. On the other hand, credit-constrained households that cultivate land or operate labor-intensive microenterprises discover new demands for child labor, either for farming, working in the microenterprise, or taking care of siblings while the mothers operate the new or expanded business. Significant program and policy consequences are derived from these paradoxical results.

Maldonado, Jorge Higinio.
Palabras clave:
development, education, microfinance, poverty alleviation, school enrollment