A Structural Evaluation of a Large-Scale Quasi-Experimental Microfinance Initiative

This paper uses a structural model to understand, predict and evaluate the impact of the Thai Million Baht Village Fund program, a large scale government microfinance initiative that involved the transfer of one million baht to nearly 80,000 villages in Thailand to start village banks. The paper studies a panel of 960 households from 64 Thai villages. It models household decisions in the face of borrowing constraints, income uncertainty, and high-yield indivisible investment opportunities. After estimation of parameters using pre-program data, the paper evaluates the model's ability to predict and interpret the impact of the village fund intervention. Simulated predictions from the model mirror actual data in reproducing a greater increase in consumption than credit, which is interpreted as evidence of credit constraints. The correct prediction of consumption increasing with the credit injection highlights the existence of credit constraints, and strongly supports the importance of bufferstock savings behavior. Nevertheless, the microfinance intervention appears to be less cost effective on average than a simpler transfer program because it saddles households with interest payments.