IDEAS home Printed from https://ideas.repec.org/p/lmu/muenec/26608.html
   My bibliography  Save this paper

Do flexible repayment schedules improve the impact of microcredit? Evidence from a randomized evaluation in rural India

Author

Listed:
  • Czura, Kristina

Abstract

Microcredit institutions typically apply rigid and fixed repayment schedules when disbursing loans in order to reduce transaction costs, simplify procedures, and inculcate fiscal discipline for better repayment behavior. Microcredit clients, however, often have neither smooth income nor singular moments in which to make lumpy investments throughout the year. This mismatch generates a cash flow disconnect and, given the presumed liquidity constraints of the typical microcredit client, a potential welfare loss. Using data from a randomized evaluation with dairy farmers in rural India, we test the impact of flexible microcredit repayment schedules relative to "normal" inflexible, fixed repayment schedules. Although we are only able to track those who borrow, which introduces potential selection effects, we find amongst those in flexible lending groups some evidence for higher ability to absorb shocks and higher income, which seems to be driven by limited improvements in investment and higher production from milk. On the cost-side, defaults do increase for the lender. Towards the end of the study, the microcredit market encountered crisis, with mass defaults, thus it is hard to generalize with respect to the default results. We conclude with caution, that we have shown suggestive evidence that a more flexible product design, one tailored to the needs of a dairy farmer, may be welfare enhancing for the dairy farmer. Further work is needed to both validate these results, and explore how to balance any trade-off with default.

Suggested Citation

  • Czura, Kristina, 2015. "Do flexible repayment schedules improve the impact of microcredit? Evidence from a randomized evaluation in rural India," Discussion Papers in Economics 26608, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:26608
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/26608/1/20.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Alessandro Tarozzi & Jaikishan Desai & Kristin Johnson, 2015. "The Impacts of Microcredit: Evidence from Ethiopia," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 54-89, January.
    2. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    3. Fischer, Gregory, 2013. "Contract structure, risk sharing and investment choice," LSE Research Online Documents on Economics 46796, London School of Economics and Political Science, LSE Library.
    4. Greg Fischer, 2013. "Contract Structure, Risk‐Sharing, and Investment Choice," Econometrica, Econometric Society, vol. 81(3), pages 883-939, May.
    5. Britta Augsburg & Ralph De Haas & Heike Harmgart & Costas Meghir, 2015. "The Impacts of Microcredit: Evidence from Bosnia and Herzegovina," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 183-203, January.
    6. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2015. "Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 151-182, January.
    7. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
    8. Bruno Crépon & Florencia Devoto & Esther Duflo & William Parienté, 2015. "Estimating the Impact of Microcredit on Those Who Take It Up: Evidence from a Randomized Experiment in Morocco," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 123-150, January.
    9. Erica Field & Rohini Pande & John Papp & Natalia Rigol, 2013. "Does the Classic Microfinance Model Discourage Entrepreneurship among the Poor? Experimental Evidence from India," American Economic Review, American Economic Association, vol. 103(6), pages 2196-2226, October.
    10. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2015. "The Impacts of Microfinance: Evidence from Joint-Liability Lending in Mongolia," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 90-122, January.
    11. Masahiro Shoji, 2012. "Evaluation Of Contingent Repayments In Microfinance: Evidence From A Natural Disaster In Bangladesh," The Developing Economies, Institute of Developing Economies, vol. 50(2), pages 116-140, June.
    12. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October.
    13. Yasuyuki Sawada & Satoshi Shimizutani, 2007. "Consumption insurance against natural disasters: evidence from the Great Hanshin-Awaji (Kobe) earthquake," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 303-306.
    14. Yasuyuki Sawada & Satoshi Shimizutani, 2008. "How Do People Cope with Natural Disasters? Evidence from the Great Hanshin-Awaji (Kobe) Earthquake in 1995," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 463-488, March.
    15. Abhijit Banerjee & Dean Karlan & Jonathan Zinman, 2015. "Six Randomized Evaluations of Microcredit: Introduction and Further Steps," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 1-21, January.
    16. Saha, Amit & Garcia, Otto & Hemme, Torsten, 2004. "The Economics of Milk Production in Orissa, India, with particular Emphasis on Small-scale Producers," PPLPI Working Papers 23761, Food and Agriculture Organization of the United Nations, Pro-Poor Livestock Policy Initiative.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. repec:eee:jeborg:v:142:y:2017:i:c:p:425-450 is not listed on IDEAS
    4. Marc Labie & Carolina Laureti & Ariane Szafarz, 2016. "Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance," Working Papers CEB 15-020, ULB -- Universite Libre de Bruxelles.

    More about this item

    Keywords

    Flexible repayment schedules; micro finance; microcredit; consumption smoothing;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:26608. 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: (Tamilla Benkelberg). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.