Closure of the Non‐Bank Microfinance Sector in Uzbekistan: Who Is Affected and by How Much?

ABSTRACT Studies of the impact of access to microfinance almost exclusively focus on assessing the microeconomic effects of the entry of microfinance institutions. We measure the effect of the 2011 closure of the entire nonbank microfinance sector in Uzbekistan. Using two waves of a unique household survey, we estimate the impact on four business (size of business, log of business profit, business ownership of respondent and log of business assets) and four household consumption (log of monthly household expenditures per capita, log of monthly household income per capita, log of household assets per capita, log of spending on housing per capita) outcomes using a modified difference‐in‐difference approach. We find that it is mostly the borrowers who are in the middle of the wealth distribution that were affected by the closure, in contrast to prevailing claims in the literature pointing to ultra‐poor borrowers. We also document the heterogeneity of the impact affecting mainly borrowers with vocational and higher education, households with medium‐level wealth and the self‐employed. Some of our key results are in contrast with existing literature. Given that access to finance is vital for low‐income households and that microfinance crises adversely affect both borrowers and nonborrowers, we argue it is important to focus on the diagnostics and prevention of potential future crises in the sector.