Repayment Frequency in Microfinance Contracts with Present-Biased Borrowers
This 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
|Date of creation:||Jul 2010|
|Date of revision:|
|Contact details of provider:|| Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp|
References listed on IDEAS
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.:
- Xavier Giné & Dean Karlan, 2009.
"Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups,"
970, Economic Growth Center, Yale University.
- Karlan, Dean & Gine, Xavier, 2009. "Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups," Working Papers 61, Yale University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cep:stieop:021. 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: ()
If references are entirely missing, you can add them using this form.