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 restrict moral hazard but limit productive risk-taking, thus limiting the impact. With a Colombian lender, we experimentally compared, for a sample of new borrowers, a standard rigid loan to a more flexible loan that included three “passes” with which borrowers could delay repayments. The flexible loan led to some shifts in investment behavior but had no average impact on revenue, profit level, or profit variance, and led 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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