Financial access and labor market outcomes: evidence from credit lotteries

BIS Working Papers  |  No 1071  | 
30 January 2023



Much hope has been placed in improved financial access to overcome the economic hurdles facing low-income households. Yet randomised-control trials across a diverse set of settings and countries have documented that lending to low-income households has only a modest or negligible effect. These findings raise the question of whether the return on capital is generally lower than expected for households with insufficient access to loans, or whether interventions might be better targeted on investments that generate higher returns.


We study access to credit for investment in transportation. We use data on participants in group-lending associations – consorcios – in Brazil. With more than 6.7 million participants in any given year, consorcios provide funding so that their low-income borrowers can purchase durable goods. The data we use generate random time-series variation in access to credit tied to the purchase of a motorcycle. We focus on motorcycle groups, which tend to comprise credit-constrained individuals.


We find that the increases in formal employment and labour income after individuals obtain access to credit are large and persistent. Specifically, formal employment rates increase by 8 percentage points and salaries are 8% higher five years after obtaining credit. Access to credit for investment in mobility yields an annual rate of return of 12%. As borrowers can travel further, we find that they can shift to jobs further away from home or from public transport. The effects are larger for lower-income individuals and in areas with less developed public transportation and sparse local labour markets. Altogether, these findings show that lending for investment in mobility lets individuals access labour markets further away, boosting their income appreciably. An important rationale for directing capital specifically to entrepreneurs is that labour markets are assumed to be fully accessible to other capital-constrained individuals, since they do not need to invest anything upfront. Our findings suggest that this may not be the case.


We assess the employment and income effects of access to credit dedicated to investment in individual mobility by exploiting time-series variation in access to credit through random lotteries for participants in a group-lending mechanism in Brazil. We find that access to credit for investment in individual mobility increases formal employment rates and salaries, yielding an annual rate of return of 12 percent. Consistent with a geographically broader job search, individuals transition to jobs farther from home and public transportation. Our results suggest that accessing distant labor markets through credit for investment in individual mobility yields high and persistent returns.

JEL classification: D14, G23, J62, R20, R23

Keywords: access to credit, household finance, labor mobility, spatial mismatch