When the economy tanks and big banks fail, micro-lenders actually grow, serving as a secret safety net.
SSRN · March 18, 2026 · 6412732
The Takeaway
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.
From the abstract
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