does meeting repay? early repayment and default in microfinance: evidence from india may 16, 2008...
TRANSCRIPT
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Does Meeting Repay? Early Repayment and Default in
Microfinance: Evidence from India
May 16, 2008IFMR - CMF
Anup Roy & Emmerich Davies
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Our Research Sought to Answer One Question: Does Introducing
Greater Flexibility in Meeting and Repayment Schedules Increase
Loan Default Rates?
The short answer is NO!...
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Village Welfare Society & the Centre for Microfinance: In
Partnership Since 2006
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What Have We Done with VWS so far?
• 2006: Began First Intervention
• 2007: First Results from First Intervention and Began Second Intervention
• 2008: Began Third Intervention and Social Altruism Lottery
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There was No Difference in the Rate of Default Between Clients
on Weekly & Monthly Repayment Schedules
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Clients on More Frequent Repayment Schedules were Far
More Likely to Repay Earlier
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Clients on Weekly Repayment Schedules Showed Far Higher
Measures of Social Capital
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Clients on Weekly Repayment Schedule Were Able to Allocate
Labour and Smooth Consumption Better
2 4 6 8hours
WeeklyMonthly
How many Hours did you work Yesterday?
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Three more Questions Arose During the First Intervention:
1. Would Introducing Even More Flexibility Lead to More Productive Investments? The Motivation for our Second Intervention
2. Do Different Repayment Schedules Create Different Incentives for Clients to Repay Early? The Motivation for our Third Intervention.
3. Do Less Frequent Meetings lead to Declining Trust and Reliance on Fellow Groups Members in Times of Need (i.e. Less Social Capital Within Groups)? The Motivation for our Lotteries
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The Second Intervention Investigates Whether Introducing a Lag Between the Disbursement
of the Loan and the First Repayment Leads to More
Productive Investments
Control Treatment•Begin Repayment As Soon as Loan is Disbursed
•Two Month Lag Before Begin to Repay
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The Third Intervention Tries to Control for the Different Interest
Rates Between Different Repayment Schedules
Control Treatment•Weekly Meeting and Repayment Schedule with 12.5% Interest Fee
•Five Weekly Meeting and Repayment
Schedule with Interest Fee
depending on loan size
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Why Hold Lotteries?
•One of the most interesting questions in Microfinance today is how do group dynamics encourage repayment and financial discipline
•Wanted to see whether increased frequency of interaction translate into economically relevant social capital
•Designed lotteries in such ways that women could share risks amongst group members
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Two Aborted Attempts in Designing a Lottery and then Success
•We are trying to design a lottery to test the effect of group risk-sharing
•We have run three pilots in the field, and believe we are ready to launch a full lottery amongst all 1,200 first intervention clients
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Two Aborted Attempts in Designing a Lottery and then Success
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Results from all Pilots
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• Second Pilot Drawings
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Questions?