Compulsory versus voluntary savings as an incentive mechanism in microfinance programs

Olivier Bruno and Knar Khachatryan ()
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Knar Khachatryan: American University of Armenia

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Abstract: This paper investigates the incentive mechanism of individual microlending contracts focusing particularly on microsavings. We built a model to show the role of compulsory and voluntary microsavings in addressing problems of information asymmetries. Our results are twofold. First, we show that compulsory savings creates incentive conditions required for allowing micro-entrepreneurs to be financed by a Microfinance institution. Second, we show that voluntary savings can serve as a complementary tool to repayment enforcement at the same time inducing borrowers to reveal abilities of their projects.

Keywords: Microfinance; Compulsory microsavings; Voluntary microsavings; Incentive mechanism; Repayment enforcement Screening (search for similar items in EconPapers)
Date: 2020
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Published in Journal of Behavioral and Experimental Finance, 2020, 26, ⟨10.1016/j.jbef.2020.100317⟩

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Journal Article: Compulsory versus voluntary savings as an incentive mechanism in microfinance programs (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03418177

DOI: 10.1016/j.jbef.2020.100317

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