The well-documented success of microenterprise credit programs in recent years has led to an explosion of interest in their use as a tool for alleviating poverty and generating economic growth in both developing and transitional economies. Evidence of this unbridled enthusiasm for such progra s occurred at a summit on microenterprise lending sponsored by the Clinton Administration in January 1997. At this summit a consortium of international aid agencies, commercial banks, and governmental authorities agreed on a plan to direct $23.6 billion toward providing access to credit to 100 million impoverished households by the year 2005. While numerous statistics have been compiled regarding the impressive participation and repayment rates realised of many microenterprise lending programs, there is a critical need for research that examines the changes in economic behaviour of loan recipients after they obtain access to this credit.
This paper seeks to make a contribution in this area by examining the impact of newfound access to credit on the class structure mobility among loan recipients. Specifically, this paper develops a model which predicts potential differences in upward class structure mobility between loan recipients with different levels of human capital. It then compares the predictions from the model with data showing the class mobility of 358 entrepreneurs in western Guatemala after the introduction of microenterprise lending within the region.
Though some may have eschewed an economic analysis of class structure mobility for its roots in Marxist ideology, policy makers concerned with developing and transitional economies have ample reason to share much of this literature's concern over the apparent immutability of class structures in many nations. The perpetuation of stark divisions between social classes between large holders of capital and wage earners, between salaried professionals and the unemployed may have negative impacts on societal welfare for a number of reasons: The first and perhaps most obvious is the societal tension and political destabilisation that results as wage earners organise against owners of capital in conflict over shares of value-added created in the production process. A class structure consisting of a few large holders of capital is also likely to foster the emergence of monopolies and forestall the benefits that accrue from competition between large numbers of enterprises.
The new growth theory has brought to light an additional benefit of an economy characterised by broadly-based capital holdings and large numbers of firms: Innovation and the creation of new ideas and techniques are now seen as a central cause of economic growth [Romer, 1990]; in a competitive economy characterised by a large number of entrepreneurs, such innovation may be more likely to occur. Finally, given the potential for moral hazard in the workplace, the hierarchical structure of a large firm creates a principal-agent network of immense complexity, as well as significant welfare losses in the form of supervision costs. In contrast, a self-employed entrepreneur whose output directly enters his own utility function does not require supervision or incentives to attain an optimum level of work effort.
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Credit Access, Human Capital, and Class Structure Mobility
