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Give me a Pass: Flexible Credit for Entrepreneurs in Colombia

Author

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  • Brune, Lasse
  • Gine, Xavier
  • Karlan, Dean

Abstract

Although microcredit has reached millions, recent randomized evaluations find limited average business impacts. Contract rigidity, specifically the fixed and frequent installments, may limit productive risk-taking and thus diminish impact on average profits but risk triggering moral hazard. We test this with a Colombian lender that experimentally compared, for a sample of new borrowers, rigid lending to a loan product that included three “passes†to push off a monthly payment to the future. The flexible loan did lead to some shifts in investment behavior but no average impact on revenue or profits level or variance, and did lead to higher default.

Suggested Citation

  • Brune, Lasse & Gine, Xavier & Karlan, Dean, 2026. "Give me a Pass: Flexible Credit for Entrepreneurs in Colombia," CEPR Discussion Papers 21180, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21180
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    File URL: https://cepr.org/publications/DP21180
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    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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