Microcredit, Labor, and Poverty Impacts in Urban Mexico

Abstract

Improved household accessibility to credit is a significant determinant of intra-household allocation of labor resources with important implications for productivity, income, and poverty status. However, credit accessibility could also have wider impacts on poverty if it leads to new hires outside the household. This paper contributes to the existing literature on microcredit in two important ways. First, it investigates the routes through which microcredit reaches those in poverty outside the household. We test whether by lending to the vulnerable non-poor microcredit can indirectly benefit poor laborers through increased employment. Second, we conduct the study in the context of urban poverty Mexico. This is relevant when considering that labor often represents the only source of livelihoods to the extreme urban poor. Our findings point to significant trickle-down effects of microcredit that benefit poor laborers; however, these effects are only observed after loan-supported enterprising households achieve earnings well above the poverty line. © 2013 John Wiley & Sons Ltd.