Repayment under Flexible Loan Contracts: Evidence from Tanzania

Antonia Grohmann, Steffen Herbold and Friederike Lenel

No 1884, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We study repayment and delinquency in an innovative loan contract that offers borrowers a wide range of flexibility. Using a large administrative dataset, we perform unsupervised pattern analysis to study how borrowers repay within the framework of this loan. We identify eight clusters that can be grouped into three distinct repayment types. We show that borrowers with fluctuating incomes and limited consumption smoothing resources use the loan’s flexibility more and that farmers in particular adjust their repayment to cash flow. Finally, we show that high use of the loan’s flexibility is associated with repayment difficulties, yet typically does not result in eventual default; whereas borrowers who face repayment difficulties that are likely driven by economic shocks face a high probability of default.

Keywords: Fexible loans; loan contracts; repayment; microfinance (search for similar items in EconPapers)
JEL-codes: C55 D14 G21 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2020
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (2)

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