Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/36765 
Year of Publication: 
2010
Series/Report no.: 
IZA Discussion Papers No. 4901
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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

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