Access to credit and female labour supply in India

• Access to microfinance integrates women into the labour force in the long run.

• This effect is driven by a greater participation of women in household business activity, but does not seem to be associated with a sustainable change in female empowerment.

• Results also suggest that as a consequence of increasing participation in the labour force, greater access to microfinance reduces fertility in the long run.

Does microfinance encourage women to actively participate in the labour market? By providing resources for home-based work, by placing resources in women’s hands and increasing their bargaining power, or by strengthening women's social networks (Feigenberg, Field, and Pande, 2013), microfinance has the potential to increase participation in the labour force. Yet, short-run experimental evaluations of microfinance have not found significant economic benefits for women (Banerjee et al, 2013; Crépon et al, 2011). Practitioners argue that changes in empowerment and job creation only occur in the longer run.

The objective of this project was to rigourously evaluate the long-term impact of having greater access to microfinance on female labour force participation. We evaluated this question in the context of urban India, where women are generally unable to take advantage of urban agglomeration and labour market opportunities. In 2009/2010 the gender gap in workforce participation rate was 59.9% in urban areas (Neff, Sen, and Kling, 2012). By taking advantage of the long time horizon of the study, we also examined the impacts of improved financial access on an understudied aspect of female autonomy: fertility.

Our project took place in Ahmedabad, India. We worked with India’s oldest financial institution for women – the Self-Employed Women’s Association (SEWA) Bank, examining their unique expansion strategy which started in 1999. In 2009, we surveyed 3000 SEWA Bank clients who held savings accounts in 1999. Detailed geographic locations of clients and collection officers allowed us to construct a quasi-random instrument of access to micro-credit.

A second wave of data collection on the same sample allowed us to examine potential channels through which urban microfinance encourages women to actively participate in the labour force. Information on labour supply and business history, as well as concrete measures of decision-making power within households and complete fertility histories was collected. Finally, we also collected information on educational attainment and child age at marriage.