Working Paper: NBER ID: w30634
Authors: Lasse Brune; Xavier Gin; Dean Karlan
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.
Keywords: microcredit; flexible loans; entrepreneurs; Colombia; randomized controlled trial
JEL Codes: G21; O21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| repayment flexibility (G51) | loan defaults (G33) |
| repayment flexibility (G51) | client satisfaction (J28) |
| client satisfaction (J28) | retention rates (M51) |
| flexflex group (C92) | standardflex group (Y90) |