Publication detail

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

Author(s): doc. PhDr. Michal Bauer Ph.D., Jonathan Morduch
doc. PhDr. Julie Chytilová Ph.D., Jonathan Morduch
Type: IES Working Papers
Year: 2008
Number: 28
Published in: IES Working Papers 28/2008
Publishing place: Prague
Keywords: time preference, hyperbolic discounting, loan contracts, microfinance
JEL codes: C93, D91, O12
Suggested Citation: Bauer, M., Chytilová, J., Morduch, J. (2008). “ Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India ” IES Working Paper 28/2008. IES FSV. Charles University.
Grants: GACR 402/05/H510 Ekonomická teorie politických trhů Global Development Network - The Role of Education in Patience Formation IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: This paper draws a link between self-control problems and the contractual mechanisms of microcredit. We use a series of “lab experiments in the field” which were designed to elicit measures of time discounting on a sample of 573 individuals in rural Karnataka, India. Evidence from the experiments were integrated with individual survey data on the economic and financial lives of villagers. One third of participants made choices consistent with hyperbolic preferences (more impatient now than in the future), and would be made better off if they could discipline their time inconsistent preferences. While hyperbolic preferences have been often associated with saving behavior, we describe links to borrowing as well. We find that “hyperbolic” women save a lower share of their savings at home and save less in total levels. Women with hyperbolic preferences are also more likely to borrow--and to do so through microcredit institutions specifically. The finding highlights the role of the fixed and frequent installment schedule ubiquitous in microcredit contracts. While microcredit contracts are celebrated for mitigating informational asymmetries, the evidence suggests that they also offer helpful structure for people with self-discipline problems who seek to accumulate capital but who lack suitable contractual saving devices.
Downloadable: WP 2008_28_Bauer, Chytilova, Morduch
June 2023


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