Give Me a Pass: Flexible Credit for Entrepreneurs in Colombia

Lasse Brune, Xavier Gine and Dean Karlan

No 30634, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Although microcredit has reached millions, recent randomized evaluations find limited average business impacts. Contract rigidity, specifically the fixed and frequent installments, may limit productive risk-taking and thus diminish impact on average profits but risk triggering moral hazard. We test this with a Colombian lender that experimentally compared, for a sample of new borrowers, rigid lending to a loan product that included three “passes” to push off a monthly payment to the future. The flexible loan did lead to some shifts in investment behavior but no average impact on revenue or profits level or variance, and did lead to higher default.

JEL-codes: G21 O21 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cta, nep-ent, nep-mfd and nep-sbm
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