Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India

Michal Bauer, Julie Chytilová () and Jonathan Morduch

No 2008/28, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper draws a link between self-control problems and the contractual mechanisms of microcredit. We use a series of “lab experiments in the field” which were designed to elicit measures of time discounting on a sample of 573 individuals in rural Karnataka, India. Evidence from the experiments were integrated with individual survey data on the economic and financial lives of villagers. One third of participants made choices consistent with hyperbolic preferences (more impatient now than in the future), and would be made better off if they could discipline their time inconsistent preferences. While hyperbolic preferences have been often associated with saving behavior, we describe links to borrowing as well. We find that “hyperbolic” women save a lower share of their savings at home and save less in total levels. Women with hyperbolic preferences are also more likely to borrow--and to do so through microcredit institutions specifically. The finding highlights the role of the fixed and frequent installment schedule ubiquitous in microcredit contracts. While microcredit contracts are celebrated for mitigating informational asymmetries, the evidence suggests that they also offer helpful structure for people with self-discipline problems who seek to accumulate capital but who lack suitable contractual saving devices.

Keywords: banking; : time preference, hyperbolic discounting, loan contracts, microfinance (search for similar items in EconPapers)
JEL-codes: C93 D91 O12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008-11, Revised 2008-11
New Economics Papers: this item is included in nep-cbe, nep-cwa, nep-exp and nep-mfd
References: Add references at CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India (2012)
Working Paper: Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India (2010)
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