Village Banking and Maternal and Child Health: Evidence from Ecuador and Honduras

Many microcredit institutions bundle credit with health, education, or other programs. This paper reviews arguments on such “tie-ins” and concludes that net benefits are possible but requires empirical testing. Quasi-experimental data from Project HOPE’s “health banks” and credit-only village banks are then examined. The paper presents evidence that health practices do not improve automatically with greater wealth. In Honduras, results show that health bank participation is robustly associated with reduced subsequent conditional child diarrhea probability, but in no specification does credit-only bank participation have this effect. In Ecuador, results suggest a larger effect of credit-only banks. In both countries, health bank participation significantly raises subsequent health care over credit-only participation, and at least reduces the tendency to switch from breast-feeding to bottle-feeding as income rises. Effects on expenditures are ambiguous. There is no clear link between tie-ins and bank performance.