Microcredit and Child Labour Following Natural Disasters: Evidence from Indonesia

This study examined how the 2006 Yogyakarta earthquake in Indonesia affected children's schooling and work, particularly for families with access to microfinance. Children in earthquake-affected areas experienced reduced schooling, but the reduction was significantly larger for those living near microfinance institutions. The researchers found that when households accessed micro-loans to start businesses, they were more likely to pull children out of school to work in these new enterprises. The findings suggest that microfinance programs need to be paired with policies protecting children's education when providing loans to disaster-affected households.

Key points

• The 2006 earthquake decreased years of schooling for affected children aged 7–14 by 0.5 years overall
• The negative effect on schooling was substantially stronger for children whose families had access to microfinance institutions
• Households with micro-loans tended to use child labour more, suggesting credit access increased the opportunity cost of schooling
• The study shows a complementary relationship between credit availability and child labour following natural disasters
• Policymakers should combine microfinance programs with educational investment protections for disaster-affected households

Limitations

The document does not provide information about the specific magnitudes of the differential effects by credit access, the long-term outcomes for affected children, or whether findings generalise beyond earthquake contexts to other types of natural disasters or shocks.