| Advocates of microlending suggest it is a sustainable intervention that reaches the poor directly and offers them the means to invest and improve their incomes (Khavul, 2010; Morduch, 1999; Yunus, 2007); yet, impact studies of these interventions have suggested they often have little or even a detrimental impact on borrowers (Van Rooyen, Stewart & De Wet, 2012). This dissertation examines the efforts to promote entrepreneurship and alleviate poverty in developing countries through microlending. I begin by reviewing the microlending literature, and in particular, impact studies of the effect microlending is having in developing countries. Next, I review theory and empirical evidence that suggests innovation is an important mediating mechanism through which capital access may contribute to poverty alleviation. Subsequently, I put forth a person-situation interactional model to explain, at least in part, how two commonly implemented parts of microlending -- incremental loans and joint liability -- may negatively impact innovation adoption and reduce the relationship between capital access and poverty alleviation.;To empirically test this model, structured interviews were conducted with 340 borrowers of both individual and group-based microloans in Ethiopia across three different microlending organizations and 11 locations. The findings are consistent with a sorting effect in that innovative individuals appear more likely to take individual loans than group loans. Additionally, the results are also consistent with a social pressure effect where innovative individuals taking group loans are less likely to behave innovatively than their peers taking individual loans. |
