Early empirical work on microenterprises in developing countries suggested that small firms appeared to have extremely high returns to capital. For example, in their paper ‘Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana’ (Journal of Development Economics, 2014) Marcel Fafchamps, David McKenzie, Simon Quinn, and Christopher Woodruff found that when small firms received capital grants, profits often rose sharply. If these firms were simply starved of capital, then expanding access to finance could unlock rapid growth. 

In contrast, initial experimental research on microfinance painted a nuanced picture. For decades, the notion seemed simple: poor households and small entrepreneurs lacked access to capital, so providing small loans could enable investment, smooth consumption, and reduce poverty. Yet as microcredit expanded from a niche innovation into a global industry, a harder question emerged. If capital constraints were so severe, why did standard microcredit so often fail to generate transformative business growth? Over time, rigorous evaluations produced a more mixed and sometimes disappointing picture than early optimism had suggested. 

In response, CSAE researchers have helped lead a shift in thinking – from asking whether finance matters to asking how financial products should be designed. Their work shows that the future of inclusive finance lies not simply in expanding access to credit, but in tailoring financial contracts to the scale, risks, and behavioural realities faced b

Traditional microcredit rests on a familiar structure: borrowers receive capital upfront and repay fixed instalments over time. This works well when returns are predictable. But for many small firms in low-income settings, returns are volatile, uncertain, and highly exposed to shocks. 

This mismatch helps explain why simply expanding access to loans has not always delivered the hoped-for gains. Fixed repayment schedules can place substantial risk on entrepreneurs, discouraging them from undertaking risky but potentially high-return investments. Rather than unlocking growth, debt can sometimes constrain it. 

Recognising these limitations, CSAE researchers have explored how financial products might be redesigned to better match the realities of smallscale enterprise.

One response has been to rethink not just the structure of loans, but their scale and purpose. In ‘Asset-Based Microfinance for Microenterprises: Evidence from Pakistan’ (Faisal Bari, Kashif Malik, Muhammad Meki, Simon Quinn, American Economic Review, 2024) CSAE researchers examine what happens when finance is explicitly linked to productive investment. 

The project departs from traditional microcredit in two important ways. First, it substantially increases the amount of financing available, recognising that many meaningful business investments are “lumpy” and cannot be financed through very small loans. Second, it ties lending to the acquisition of specific productive assets, encouraging investment that directly supports business expansion. 

The underlying insight is simple but important: for many firms, the problem is not just access to credit, but access to appropriately structured and sufficiently large capital. In this sense, microfinance may sometimes be “too micro” to support growth.

Another strand of CSAE research has focused on the relationship between borrowing and saving. 

In ‘Two Sides of the Same Rupee? Comparing Demand for Microcredit and Microsaving in a Framed Field Experiment in Rural Pakistan’ (Uzma Afzal, Giovanna d’Adda, Marcel Fafchamps, Simon Quinn, and Farah Said, Economic Journal, 2018) CSAE researchers tested an idea that had been the subject of speculation in academic literature: that for many low-income households, both borrowing and saving can serve the same purpose, to accumulate lump sums. 

This is especially true when households struggle to hold onto savings because of self-control problems or social pressure, while also needing large sums for investments or major purchases. Under these conditions, a loan and a commitment savings product may both function as mechanisms for disciplined accumulation. 

This was a major conceptual breakthrough. It suggested that microcredit’s appeal may often reflect not demand for immediate consumption, but demand for commitment. Saving and borrowing were not opposites, instead they were alternative tools for solving the same behavioural problem.

This behavioural perspective deepened in ‘Demand for Commitment in Credit and Saving Contracts: A Field Experiment’ (Uzma Afzal, Giovanna d’Adda, Marcel Fafchamps, Simon Quinn, and Farah Said, Economic Journal, 2024). 

Returning to Pakistan, the researchers tested how clients valued reminders, penalties, and flexibility in financial products. Their findings reinforced an important principle: many clients actively value discipline. Standard fixed repayment schedules, often criticised for rigidity, can themselves function as useful commitment devices, helping households manage temptation, inattention, or competing social demands. At the same time, different clients valued different combinations of flexibility and discipline depending on their financial habits. The lesson was clear: microfinance products should not simply be accessible; they should be behaviourally intelligent.