No. 285 - Micro Enterprise and Macro Policy

by Robert Townsend
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This paper is about how to evaluate credit and insurance programs like the Grameen Bank in Bangladesh; Accion, Prodem/Banco Sol in Bolivia; and the Badan Kredit Kecamatan (BKK), Indonesia; and how to formulate policy regarding financial sector reform. Conventional macro policy recommendations are scrutinized in light of explicit models with micro underpinnings and in light of data from field research and household surveys. Issues addressed are the relationship between inequality and growth; links between improved financial intermediation and increased growth; financial market liberalization, inflation and growth; and mixing altruistically motivated transfers with the operation of credit markets. Macro models with micro foundations sometimes support but more often cast doubt on conventional wisdom. Called into question are metrics used typically to judge the success of credit-insurance programs and whether intervention is needed. More to the point, the paper shows how micro data can be used to shed light on whether the models are correct and what policy interventions might be Pareto improving.

Presentation at a Seminar held by the author at the Research Department of the Bank of Italy, 25 June 1996.

Full text

  1. 30 October 1996
    No. 285 - Micro Enterprise and Macro Policy
    PDF 14 MB