Microfinance in the U.S.

This paper studies quantitatively how a microfinance program in the U.S. affects occupational choice, credit access, wages, output, inequality, and welfare. The general equilibrium model has heterogeneous agents, a bank with a minimum loan size requirement, and a microfinance institution (MFI) with a loan interest rate that exceeds the bank’s. Four microfinance program policies are evaluated: alternative minimum loan size requirements, changes in the loan cost wedge (due to innovation or regulation), changes to the level of a government subsidy, and alternative MFI sustainability requirements. We find that MFIs can have significant welfare effects for some individuals, ranging from zero to 12% of consumption among high ability but low wealth individuals.