The influence of microfinance on the children schooling of Bolivian households

Microfinance programs while strategic for poverty alleviation, may have an effect on the education performance of their client’s children. This paper uses data from three different surveys of households of clients of microfinance organizations (MFOs) in Bolivia to examine several channels through which microfinance may exert an influence on education performance. Five channels are identified, designated as income, riskmanagement, child-labor demand, gender, and information effects.

The results challenge usual assumptions in microfinance programs. In particular, for some ranges of household income and some types of borrowers, access to loans has conflicting effects on school enrollment. On the one hand, loans increase the demand for education as a result of income, risk-management, gender, and information effects. On the other hand, credit-constrained households that cultivate land or operate labor-intensive micro enterprises discover new demands for child labor, either for farming, working in the micro enterprise, or taking care of siblings while the mothers operate the new or expanded business. Significant program and policy consequences are derived from these paradoxical results.