The Influence of Microfinance on the Education Decisions of Rural Households: Evidence from Bolivia

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. The paper:

• Identifies the following five channels:
  • Income;
  • Risk-management;
  • Child-labor demand;
  • Gender;
  • Information effects.
• Examines the effect that access to credit has on rural households with regards to education of children;
• Bases the study on econometric specification that explains schooling decisions at the household level;
• Uses regression models to:
  • Examine determinants of education achievements;
  • Make inferences about the political influence of microfinance on these achievements.

The authors find that:

• For some ranges of household income and some types of borrowers, access to loans has conflicting effects on school enrolment;
• On the one hand, loans increase the demand for education as a result of income, risk-management, gender and information effects, while on the other hand, credit-constrained households that cultivate land or operate labor-intensive micro-enterprises discover new demands for child labor.

The paper concludes that:

• Alleviation of poverty requires improvement in education;
• Programs that improve the income-generating capacity of households and their ability to withstand adverse shocks shift the demand for education;
• Educated household adults generate a stronger demand for the education of household children;
• Access to financial services allows households to smooth their consumption and increase the investment in education.