Economic and Employment Effects of Microloans in a Transition Country

Over the last years, microloans to small and medium-sized enterprises have grown in significance in many countries of Central and Eastern Europe. Empirical evidence on the economic and social impact of microfinance is, however, scant. In trying to shed more light on this important issue, this paper uses a case study and analyzes the economic impacts of the microloan programme of the Latvian development bank Hipoteku Banka. We analyse a dataset provided by the Hipoteku Banka and use economic indicators of Latvia and its regions as comparisons. We find that the firms that were granted a loan from Hipoteku Banka on average considerably increased their employment during the loan period. In addition, a survey was carried among the clients of the bank. The survey results imply that the microloan program made a clear contribution to supporting existing firms and establishing new businesses, although the impact varies across sectors of economic activity.