Fischer, Greg and Ghatak, Maitreesh (2010) Repayment frequency in microfinance contracts with present-biased borrowers. Economic Organisation and Public Policy Discussion Papers, EOPP 021. The London School of Economics and Political Science, Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.
|
PDF
- Published Version
Download (311Kb) | Preview |
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 (Technical Report) |
|---|---|
| Official URL: | http://sticerd.lse.ac.uk/ |
| Additional Information: | © 2010 The Authors |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Sets: | Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) |
| Identification Number: | EOPP 021 |
| Date Deposited: | 23 Jul 2014 14:53 |
| URL: | http://eprints.lse.ac.uk/58184/ |
Actions (login required)
 |
Record administration - authorised staff only |
Download statistics
Download statistics