Repayment Frequency and Default in Micro-Finance: Evidence from India

Citation:

Field, Erica, and Rohini Pande. “Repayment Frequency and Default in Micro-Finance: Evidence from India”. Journal of European Economic Association Papers and Proceedings 6 .(2-3) (2008): , 6 , (2-3), 501-550. Web. Copy at http://www.tinyurl.com/y4yojpdj
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Abstract:

In stark contrast to bank debt contracts, most micro-finance contracts require that repayments start nearly immediately after loan disbursement and occur weekly thereafter. Even though economic theory suggests that a more flexible repayment schedule would benefit clients and potentially improve their repayment capacity, micro-finance practitioners argue that the fiscal discipline imposed by frequent repayment is critical to preventing loan default. In this paper we use data from a field experiment which randomized client assignment to a weekly or monthly repayment schedule and find no significant effect of type of repayment schedule on client delinquency or default. Our findings suggest that, among micro-finance clients who are willing to borrow at either weekly or monthly repayment schedules, a more flexible schedule can significantly lower transaction costs without increasing client default. (JEL: O12, O16, O22)

Publisher's Version

Last updated on 08/20/2014