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

Michal Bauer, Julie Chytilová () and Jonathan Morduch

No 4901, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Microcredit is an innovative financial tool designed to reduce poverty and fix credit market imperfections. We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit. Conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Microcredit contracts require loan repayments in regular, fixed installments and they harness peer pressure to encourage discipline. These innovations mirror mechanisms highlighted in behavioral approaches to saving, suggesting that microcredit's popularity stems partly from modes of encouragement and self-discipline absent in typical lending mechanisms.

Keywords: time preference; hyperbolic discounting; self-control; microfinance; loan contracts (search for similar items in EconPapers)
JEL-codes: C93 D91 O12 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2010-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: American Economic Review, 2012, 102 (2), 1118-1139

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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 (2008)
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