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

We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that microcredit contracts may do more than reduce m...

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Bibliographic Details
Published in:The American economic review 2012-04, Vol.102 (2), p.1118-1139
Main Authors: Bauer, Michal, Chytilová, Julie, Morduch, Jonathan
Format: Article
Language:English
Subjects:
Adverse selection
Bank loans
Behavior
Bias
Borrowing
Cost control
Debt repayment
Discipline
Discount rates
Discounting
Economic theory
Education
Financial services
India
Innovations
Installment loans
Loan payments
Loans
Microcredit
Microfinance
Moral hazard
Nobel prizes
Risk aversion
Rural areas
Savings
Self control
Shorter Papers
Social sciences
Studies
Transaction costs
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Summary:We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that microcredit contracts may do more than reduce moral hazard and adverse selection by imposing new forms of discipline on borrowers. We find that, conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Another particular contribution of microcredit may thus be to provide helpful structure for borrowers seeking self-discipline. JEL: G21, I38, O15, O16, O18
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.102.2.1118