Repayment Frequency in Microfinance Contracts with Present-Biased Borrowers
AbstractThis paper analyzes the theoretical underpinnings of high-frequency repayment, afeature in nearly all microfinance contracts that has been largely overlooked bytheorists. The pervasive belief among practitioners that frequent repayment is criticalin achieving high repayment rates is puzzling. Classically rational individualsshould benefit from more flexible repayment schedules, and less frequent repaymentshould increase neither default nor delinquency. This paper proposes a simpleexplanation based on present bias. For such individuals, more frequent repaymentcan increase the maximum incentive compatible loan size. However, the welfareeffects are ambiguous. More frequent repayment can lead to over-borrowing,reducing welfare as it increases loan sizes.4
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 021.
Date of creation: Jul 2010
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Microfinance; Repayment Frequency; Present-Bias;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-DEV-2011-02-26 (Development)
- NEP-MFD-2011-02-26 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Karlan, Dean & Gine, Xavier, 2009.
"Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups,"
61, Yale University, Department of Economics.
- Xavier Giné & Dean Karlan, 2009. "Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups," Working Papers 970, Economic Growth Center, Yale University.
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