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Title:Behavioral foundations of microcredit: Experimental and survey evidence from rural India PDF Logo
Authors:Bauer, Michal
Chytilová, Julie
Morduch, Jonathan
Issue Date:2010
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 4901
Abstract:Microcredit is an innovative financial tool designed to reduce poverty and fix credit market imperfections. We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit. Conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Microcredit contracts require loan repayments in regular, fixed installments and they harness peer pressure to encourage discipline. These innovations mirror mechanisms highlighted in behavioral approaches to saving, suggesting that microcredit's popularity stems partly from modes of encouragement and self-discipline absent in typical lending mechanisms.
Subjects:Time preference
hyperbolic discounting
self-control
loan contracts
microfinance
JEL:C93
D91
O12
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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