IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Does the Classic Microfinance Model Discourage Entrepreneurship among the Poor? Experimental Evidence from India

  • Erica Field
  • Rohini Pande
  • John Papp
  • Natalia Rigol

Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.6.2196
Download Restriction: no

File URL: http://www.aeaweb.org/aer/data/oct2013/20111194_data.zip
Download Restriction: no

File URL: http://www.aeaweb.org/aer/data/oct2013/20111194_app.pdf
Download Restriction: no

File URL: http://www.aeaweb.org/aer/ds/oct2013/20111194_ds.zip
Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 6 (October)
Pages: 2196-2226

as
in new window

Handle: RePEc:aea:aecrev:v:103:y:2013:i:6:p:2196-2226
Note: DOI: 10.1257/aer.103.6.2196
Contact details of provider: Web page: https://www.aeaweb.org/aer/
Email:


More information through EDIRC

Order Information: Web: https://www.aeaweb.org/subscribe.html

No references listed on IDEAS
You can help add them by filling out this form.

When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:103:y:2013:i:6:p:2196-2226. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)

or (Michael P. Albert)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.