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Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India
by Michal Bauer,Julie Chytilova,Jonathan Morduch in 2010
World Region: South Asia
This paper uses 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 pand self-discipline absent in typical lending mechanisms.