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Discipline and flexibility: a behavioural perspective on microfinance product design

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  • Marc Labie
  • Carolina Laureti
  • Ariane Szafarz

Abstract

The success of both microcredit and micro-savings products rests upon simplicity and standardization in order to stimulate client discipline. However, these products lack flexibility. This paper attempts to make sense of behavioural product design in microfinance. We focus on the potential trade-offs between discipline and flexibility. While discipline devices encourage clients to make payments on time, microfinance product flexibility improves clients’ day-to-day money management and helps them cope with shocks. Our contribution is twofold. Firstly, we highlight the evidence-based advantages and disadvantages of flexible products in microfinance. Secondly, we present best-practice examples of flexible products offered by microfinance institutions worldwide.

Suggested Citation

  • Marc Labie & Carolina Laureti & Ariane Szafarz, 2017. "Discipline and flexibility: a behavioural perspective on microfinance product design," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 321-337, July.
    • Handle: RePEc:taf:oxdevs:v:45:y:2017:i:3:p:321-337
    DOI: 10.1080/13600818.2016.1239701
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    References listed on IDEAS

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    1. Jeremy Burke & Jill Luoto & Francisco Perez-Arce, 2014. "Soft versus Hard Commitments A Test on Savings Behaviors," Working Papers 1055, RAND Corporation.
    2. Fischer, Greg & Ghatak, Maitreesh, 2010. "Repayment frequency in microfinance contracts with present-biased borrowers," LSE Research Online Documents on Economics 58184, London School of Economics and Political Science, LSE Library.
    3. Czura, Kristina, 2015. "Do flexible repayment schedules improve the impact of microcredit?," Discussion Papers in Economics 26608, University of Munich, Department of Economics.
    4. Mark Dean & Anja Sautmann, 2014. "Credit Constraints and the Measurement of Time Preferences," Working Papers 2014-1, Brown University, Department of Economics.
    5. Jeremy Burke & Jill E. Luoto & Francisco Perez-Arce, 2014. "Soft versus Hard Commitments A Test on Savings Behaviors," Working Papers WR-1055, RAND Corporation.
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    Cited by:

    1. Carolina Laureti & Ariane Szafarz, 2017. "Behavioral Banking: A Theory of the Banking Firm with Time-Inconsistent Depositors," Working Papers CEB 17-028, ULB -- Universite Libre de Bruxelles.
    2. Laureti, Carolina & Szafarz, Ariane, 2023. "Banking regulation and costless commitment contracts for time-inconsistent agents," Economic Modelling, Elsevier, vol. 129(C).
    3. Cozarenco, Anastasia & Szafarz, Ariane, 2020. "The regulation of prosocial lending: Are loan ceilings effective?," Journal of Banking & Finance, Elsevier, vol. 121(C).
    4. Jann Goedecke & Isabelle Guérin & Bert D'Espallier & Govindan Venkatasubramanian, 2018. "Why do financial inclusion policies fail in mobilizing savings from the poor? Lessons from rural south India," Development Policy Review, Overseas Development Institute, vol. 36(S1), pages 201-219, March.
    5. Naegels, Vanessa & Mori, Neema & D'Espallier, Bert, 2022. "The process of female borrower discouragement," Emerging Markets Review, Elsevier, vol. 50(C).
    6. Dalla Pellegrina, Lucia & De Michele, Angela & Di Maio, Giorgio & Landoni, Paolo, 2021. "Fostering savings by commitment: Evidence from a quasi-natural experiment at The Small Enterprise Foundation in South Africa," World Development, Elsevier, vol. 148(C).
    7. Kristina Czura & Anett John & Lisa Spantig, 2020. "Flexible Contract, Flexible Morale? Microcredit Design and Repayment Discipline," CESifo Working Paper Series 8322, CESifo.
    8. Lasse Brune & Xavier Giné & Dean Karlan, 2022. "Give Me a Pass: Flexible Credit for Entrepreneurs in Colombia," NBER Working Papers 30634, National Bureau of Economic Research, Inc.
    9. Anastasia Cozarenco & Valentina Hartarska & Ariane Szafarz, 2019. "Too Many Cooks Spoil the Broth: The Conflicting Impacts of Subsidies and Deposits on the Cost-Efficiency of Microfinance Institutions," Working Papers CEB 19-001, ULB -- Universite Libre de Bruxelles.
    10. d'Adda, Giovanna & Mahmud, Mahreen & Said, Farah & Bonan, Jacopo, 2020. "The Role of Flexibility and Planning in Repayment Discipline: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity," RFF Working Paper Series 20-14, Resources for the Future.
    11. Carolina Laureti & Alain De Janvry & Elisabeth Sadoulet, 2017. "Flexible Microfinance Products for Financial Management by the Poor: Evidence from SafeSave," Working Papers CEB 17-036, ULB -- Universite Libre de Bruxelles.
    12. Carolina Laureti, 2017. "Why do Poor People Co-hold Debt and Liquid Savings?," Working Papers CEB 17-007, ULB -- Universite Libre de Bruxelles.
    13. Siddiqur Rahman Osmani & Md Abdul Baqui Khalily & Mehadi Hasan, 2024. "The dynamics of overlapping borrowing in the microcredit sector of Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(5), pages 2478-2503, July.
    14. Antonia Grohmann & Steffen Herbold & Friederike Lenel, 2020. "Repayment under Flexible Loan Contracts: Evidence from Tanzania," Discussion Papers of DIW Berlin 1884, DIW Berlin, German Institute for Economic Research.
    15. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).

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