We run a field experiment offering graduated microcredit clients the opportunity to finance a business
asset worth four times their usual borrowing limit. We implement this using a hire-purchase contract;
our control group is offered a zero-interest loan at the usual borrowing limit. We find large, significant
and persistent effects: treated microenterprise owners run larger businesses with higher profits; conse-
quently, household consumption increases, particularly on food and children’s education. A dynamic
structural model with non-convex capital adjustment costs rationalises our results and allows counter-
factual analysis; this highlights the potential for welfare improvements through large capital injections
that are financially sustainable.