Fischer, Greg and Ghatak, Maitreesh 
ORCID: 0000-0002-0126-0897
(2010)
Repayment frequency in microfinance contracts with present-biased borrowers.
Economic Organisation and Public Policy Discussion Papers (EOPP 021).
Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.
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Abstract
This paper analyzes the theoretical underpinnings of high-frequency repayment, a feature in nearly all microfinance contracts that has been largely overlooked by theorists. The pervasive belief among practitioners that frequent repayment is critical in achieving high repayment rates is puzzling. Classically rational individuals should benefit from more flexible repayment schedules, and less frequent repayment should increase neither default nor delinquency. This paper proposes a simple explanation based on present bias. For such individuals, more frequent repayment can increase the maximum incentive compatible loan size. However, the welfare effects are ambiguous. More frequent repayment can lead to over-borrowing, reducing welfare as it increases loan sizes.4
| Item Type: | Monograph (Report) |
|---|---|
| Official URL: | http://sticerd.lse.ac.uk/ |
| Additional Information: | © 2010 The Authors |
| Divisions: | STICERD |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Date Deposited: | 23 Jul 2014 14:53 |
| Last Modified: | 13 Sep 2024 16:43 |
| URI: | http://eprints.lse.ac.uk/id/eprint/58184 |
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