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

By Michal Bauer, Julie Chytilová, J. Morduch. Social Science Research Network, 2012

307 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9174b8faeb31a6b39ccb8f49fa6110ff0470fef2

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Saving more in groups: Field experimental evidence from Chile (2018, background): “The Savings Buddy retains the element of peer pressure – others observing the performance of the participant (Schelling, 1984; Bauer et al., 2012) – while the Peer Information Treatment retains the element of observing the performance of others (Battaglini et al.”
Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana (2014, background): “Microcredit has been argued as allowing individuals to overcome present-bias by providing self-discipline and encouragement through regular payments and group meetings (Bauer et al, 2012).”
The Economic Returns to Social Interaction: Experimental Evidence from Microfinance (2013, background): “Fischer and Ghatak (2010) show that microfinance repayment schedules are attractive to present-biased borrowers and consistent with this, Bauer et al. (2012) shows that microfinance borrowers are relatively more likely to be present-biased.”
Working over Time: Dynamic Inconsistency in Real Effort Tasks (2015, unknown): “…identify time preferences include Ashraf, Karlan, and Yin (2006), Andersen et al. (2008), Dohmen et al. (2010), Tanaka, Camerer, and Nguyen (2010), Benjamin, Choi, and Strickland (2010), Voors et al. (2012), Bauer, Chytilova, and Morduch (2012), Sutter et al. (2013), and Dupas and Robinson (2013).”
Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco (2013, methodology): “34 Bauer et al (2012) find that present-biased Indian villagers are more likely to use microcredit, and speculate that installment debt and/or joint liability serve as commitment devices that improve financial discipline 35 .”
Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know? (2013, background): “One notable exception is provided by Bauer et al. (2012), who show that among women in rural Karnataka 14Gugerty (2007) makes a similar argument for why ROSCAs are so popular in Africa.”
Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya (2011, methodology): “20 Emanuelle Auriol and Michael Warlters (2005) estimate a marginal cost of public funds of 17 percent in subSaharan Africa. Henrik Jacobsen Kleven and Claus Thustrup Kreiner (2006) report similar estimates for OECD”