209544 Credit in times of crisis: Understanding the protective health effects of microfinance during the Indonesian Financial Crisis

Tuesday, November 10, 2009: 1:05 PM

Chethan Bachireddy, BA , Harvard University, Lufkin, TX
Background: Microfinance has been shown to play a vital role in household consumption behavior, which in turn can have a profound effect on health. This paper seeks to examine this relationship in the context of the Indonesian Financial Crisis (c 1997-1999).

Methods: Indonesian Family Life Survey (IFLS) data from 1997 and 2000 are used to capture periods before and after the financial crisis. Instrumental variable least squares (IVLS) regression is utilized to determine causality. The instrumental variable is distance from household to microfinance institution. The change in ln(PCE) between years is used as the dependent variable and represents household consumption smoothing (a negative coefficient implies increased consumption smoothing).

Results: From 1997 to 2000, total per capita expenditure (PCE) decreased 18%, medical PCE decreased 4.24%, food PCE decreased .79%, and education PCE decreased 11.55%. Households which participated in microfinance smoothed overall PCE by -3.533 (p<.05), food PCE by -1.98 (p<.10), and education PCE by -4.47 (p<.01). Microfinance participation smoothed medical PCE by -2.28, but the relation was statistically insignificant (p=.53).

Conclusions: We learn that microfinance was able to assist households in smoothing education and food expenditures. Given the importance of food and education to health, microfinance can act as a crucial safety net during times of crisis, preventing adverse health and social outcomes. The lack of a significant effect of microfinance on medical consumption smoothing may suggest that in times of crisis, households are willing to defer medical costs in favor of more immediate needs such as food and education.

Learning Objectives:
1. Discuss the impact of microfinance on health during the Indonesian Financial Crisis. 2. Analyze household consumption behavior as it relates to health during the Indonesian Financial Crisis.

Presenting author's disclosure statement:

Qualified on the content I am responsible for because: I conducted my senior thesis research on this topic and was an economics major/health policy minor in college.
Any relevant financial relationships? No

I agree to comply with the American Public Health Association Conflict of Interest and Commercial Support Guidelines, and to disclose to the participants any off-label or experimental uses of a commercial product or service discussed in my presentation.