Year: 2010
Type: preprint
Abstract: This paper analyzes the theoretical underpinnings of high-frequency repayment, afeature in nearly all microfinance contracts that has been largely overlooked bytheorists. The pervasive belief among practitioners that frequent repayment is criticalin achieving high repayment rates is puzzling. Classically rational individualsshould benefit from more flexible repayment schedules, and less frequent repaymentshould increase neither default nor delinquency. This paper proposes a simpleexplanation based on present bias. For such individuals, more frequent repaymentcan increase the maximum incentive compatible loan size. However, the welfareeffects are ambiguous. More frequent repayment can lead to over-borrowing, reducing welfare as it increases loan sizes.4
Authors: Greg Fischer, Maitreesh Ghatak
Institution: London School of Economics and Political Science
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2153044927