When the economy tanks and big banks fail, micro-lenders actually grow, serving as a secret safety net.
Using 21 years of data, the researcher found that microfinance is 'counter-cyclical'—it expands when the economy shrinks. While normal banks stop lending during crises, microfinance lenders keep the credit flowing to the smallest borrowers.
Financial System Resilience and Credit Heterogeneity:,A Comparative Analysis of Consumer Credit and Microfinance in Peru (2004–2025)
SSRN · 6412732
This paper examines how credit heterogeneity shapes financial system resilience in an emerging market context. Using 21 years of monthly data from Peru (2004–2025), I estimate Vector Error Correction (VEC) models and panel data regressions with credit-type fixed effects to document stark differences in cyclical behavior between consumer credit and microfinance. Consumer credit is highly pro-cyclical: GDP elasticity = 1.87 (95% CI: [1.52, 2.22], p < 0.01) and interest-rate semi-elasticity = -0.34