EconPapers    
Economics at your fingertips  
 

Flexible Microcredit: Effects on Loan Repayment and Social Pressure

Kristina Czura, Anett John () and Lisa Spantig

No 8322, CESifo Working Paper Series from CESifo

Abstract: Flexible repayment schedules allow borrowers to invest in profitable yet risky projects, but practitioners fear they erode repayment morale. We study repayment choices in rigid and flexible loan contracts that allow discretion in repayment timing. To separate strategic repayment choices from repayment capacity given income shocks, we conduct a lab-in-the-field experiment with microcredit borrowers in the Philippines. Our design allows us to observe social pressure, which is considered both central to group lending, and excessive in practice. In our rigid benchmark contract, repayment is much higher than predicted under simple payoff maximization. Flexibility reduces high social pressure, but comes at the cost of reduced loan repayment. We present theoretical and empirical evidence consistent with a strong social norm for repayment, which is weakened by the introduction of flexibility. Our results imply that cooperative behavior determined by social norms may erode if the applicability of these norms is not straightforward.

Keywords: peer punishment; social norms; microfinance; flexible repayment (search for similar items in EconPapers)
JEL-codes: O16 D90 G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp, nep-mfd and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8322.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8322

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2020-11-11
Handle: RePEc:ces:ceswps:_8322