Flexible Microcredit: Effects on Loan Repayment and Social Pressure

Czura, Kristina; John, Anett; Spantig, Lisa

doi:10.2139/ssrn.3618847

Cited by 6 publications

(3 citation statements)

References 53 publications

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“…Some studies have linked social networks [ 49 ], social capital [ 50 ] and social pressure [ 51 ] with microfinance. The social environment significantly affects the availability of credit.…”

Section: Institutional Backgroundmentioning

confidence: 99%

The Role of Microfinance in China’s Rural Public Health: Evidence from the Anti-Poverty Microcredit Program

Cui

Jiang

2022

IJERPH

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This study presents nonlinear evidence of the effects of a microcredit program implemented in poverty-stricken villages in China on rural public health using multivariate-ordered Probit and IV-ordered Probit models. The results, which were based on a unique set of data gathered from two rounds of official tracking statistics obtained through investigation (2015 and 2018) at a household level, suggest that rural residents’ health levels and health insurance demands are related to the formal credit amount that they receive from the microcredit program. Further, the amount of debt that remains to be paid is a negative mediator and the poverty reduction degree is a positive mediator for the health impact of credit. After dividing the sample into subgroups according to income, credit rating and social network, the results show heterogeneity: the health outcomes of groups with a low income, a high credit rating and a strong social network are more significantly improved by loans. The estimations are still robust after using network and village clan numbers as instrumental variables to address endogeneity. Although most of the existing literature demonstrates that credit and indebtedness have negative impacts on health, our results supplement previous findings of the positive causality between access to formal credit and rural public health by showing that the former can exert positive effects by relaxing individuals’ external constraints and increasing health spending.

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Section: Institutional Backgroundmentioning

confidence: 99%

The Role of Microfinance in China’s Rural Public Health: Evidence from the Anti-Poverty Microcredit Program

Cui

Jiang

2022

IJERPH

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“…In contrast, we take a relatively 'light-touch' approach, by screening only on the basis of microentrepreneurs having graduated from borrowing and successfully repaying smaller loans. 7 A similar group of papers have used theory and lab experiments to demonstrate the benefits (and costs) of repayment flexibility in microfinance contracts: see Fischer (2013), Fischer and Ghatak (2016), Czura (2015), Barboni (2017) and Czura, John, and Spantig (2020). 8 Battaglia et al (2018) note that the relationship between risk aversion and flexibility is theoretically ambiguous; this result is driven by the possibility of selection into more risky or less risky projects.…”

Section: Introductionmentioning

confidence: 99%

Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

Bari,

Malik,

Meki

et al. 2024

American Economic Review

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We run a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their usual borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero interest loan at the usual borrowing limit. We find large, significant, and persistent effects: treated microenterprise owners run larger businesses with higher profits; consequently, household consumption increases, particularly on food and children’s education. A dynamic structural model with nonconvex capital adjustment costs rationalizes our results and allows counterfactual analysis; this highlights the potential for welfare improvements through large capital injections that are financially sustainable. (JEL C93, D22, G21, G32, L25, O14, O16)

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“…It can be argued that such rigidity may cause a mismatch between the cash‐flow and investment needs of micro‐borrowers, inducing them to resort to the practices of multiple borrowing and overlapping, in addition to causing various kinds of inefficiency. On the general topic of flexible versus rigid schedules, see among others, Field et al (2013), Labie et al (2017), Barboni and Agarwal (2018), Czura et al (2020) and Battaglia et al (2021).…”

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confidence: 99%

The dynamics of overlapping borrowing in the microcredit sector of Bangladesh

Osmani,

Khalily,

Hasan

2024

J of Intl Development

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Overlapping borrowing – i.e., the practice of taking new loans before old loans have been fully repaid – has become an important phenomenon in the microcredit sector in many developing countries, including Bangladesh. This paper examines the rationale for overlapping and investigates its short‐term and long‐term consequences by using a panel data set that is representative of Bangladesh as a whole. The study finds that it is useful to distinguish between two broad groups of overlapping borrowers who differ in terms of both the rationale of overlapping and its consequences. The first group – consisting of more than half of all overlapping borrowers – uses it as a promotional strategy, to improve their economic conditions without incurring a sharp discrete jump in debt burden. The other group uses it as a coping strategy, to deal with contingencies that compel them to take loans of a non‐productive nature, again by avoiding a sharp discrete jump in the debt burden. Econometric analysis, allowing for the possibility of endogeneity bias, shows that the first group is able to achieve stronger financial viability in the long run in comparison with non‐overlapping microcredit borrowers. The second group, in contrast, does not enjoy any significant improvement in their living conditions, but they are able to stave off any decline that otherwise might have befallen them in the face of shocks. Thus, both groups succeed in their respective goals, which are promotion for the first group and protection for the second. Microcredit has always had this duality of promotion and protection; overlapping borrowing serves to strengthen these functions of microcredit.

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Flexible Microcredit: Effects on Loan Repayment and Social Pressure

Cited by 6 publications

References 53 publications

The Role of Microfinance in China’s Rural Public Health: Evidence from the Anti-Poverty Microcredit Program

The Role of Microfinance in China’s Rural Public Health: Evidence from the Anti-Poverty Microcredit Program

Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

The dynamics of overlapping borrowing in the microcredit sector of Bangladesh

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