New Perspectives on Microfinance: the importance of microcredit plus and the role of internal constraints

This thesis focuses on two issues on microfinance that have received little attention. First, microcredit plus, in particular the importance of technical assistance. While traditionally MFIs focus mainly on the provision of microcredit, they now provide a much broader set of financial and non-financial services, known as microfinance plus activities. However, the existing literature on this topic does not pay attention at all to technical assistance. We provide evidence that this specific microfinance plus activity indeed may improve welfare of microcredit borrowers. Second, the role of internal constraints, specifically the lack of aspirational hope. Most studies that try to explain why some people are poor, while others are rich, emphasize the role of external constraints, such as a lack of access to credit or education. Influenced by various psychological studies, more recently economists have started to pay attention to the importance of internal psychological constraints to explain why some people are trapped in poverty. However, the literature on microfinance does not yet pay attention to the potential relevance of internal psychological constraints of the borrowers. Our findings show that an aspirational hope intervention relaxes internal constraints of microcredit borrowers and that microcredit itself releases internal constraints, specifically low aspirations, of its clients.