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RESEARCH PRODUCT

Microfinance and Life Satisfaction in Ecuador A study about financial determinants of life satisfaction among micro entrepreneurs in the informal economy

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Masteroppgave økonomi og administrasjon- Universitetet i Agder, 2015 This study examines if and how leverage, delayed payments, and business profit influence life satisfaction among microfinance clients in the informal economy in Ecuador. To examine this, cross-sectional data is used. A dataset is used consisting of 752 micro entrepreneurs who work within different industries and reside in 6 different provinces. Several different statistical analyses are conducted with the main analysis being a hierarchical multiple linear regression analysis. The analysis consists of 2 blocks where traditional variables often found in happiness and life satisfaction studies are used as control variables in the 1st block, and the 2nd block consisting of exploratory variables. The results indicate that leverage and life satisfaction have a concave relationship, with low and moderate amounts of leverage being positively correlated with life satisfaction, and higher leverage being negatively correlated with life satisfaction. Having delayed payments or not does not have any effect on life satisfaction. The effects of business profits are less conclusive. This research suggests that microfinance institutions and policymakers can direct attention towards the effect leverage have on people’s lives. This can be important to the extent that MFIs can monitor or control the borrowers leverage ratios to make sure they do not exceed a level that potentially can decrease their life satisfaction. The findings also suggest that from a personal well-being perspective, there is an optimum level of leverage where up to a certain point debt adds to the personal well-being, after which incremental debt is not making entrepreneurs better off. Thus, microfinance institutions should be wary of the leverage effect on the personal wellbeing and life-satisfaction of entrepreneurs, and not push out loans above a certain maximum point.