Microcredit, Labor, and Poverty Impacts in Urban Mexico

This paper studies the routes through which microcredit reaches those in poverty outside the borrowing household. In the context of urban Mexico, a test was conducted to understand whether lending to the vulnerable non-poor can indirectly benefit poor laborers through increased employment. Quasi-experimental data collected from three microcredit programs operating in Mexico was employed to make observations. They include:

• Not only credit access but also membership duration is an important determinant in an increased allocation of labor resources;
• If by borrowing capital, enterprising households increase production (and hence earnings) up to a level that they cannot supply the units of labor required for production by themselves, then the marginal propensity to hire labor becomes significant. However, this was observed only after households cross an income threshold estimated to be at a level three times as high as the poverty line;
• While laborers employed by control households received wages well below the poverty line, laborers hired by treatment households reported wages above such a threshold.