Date and Time: June 3, 2021：16：45－18：15
Venue: Zoom Online
Language: Japanese

Reporter: KONO, Hisaki（GSE）

Title: At the Right Time: Modifying Repayment and Disbursement Schedule in Microcredit (joint with Abu Shonchoy and Kazushi Takahashi)

Abstract:
Although microcredit has expanded credit access, its outreach is still limited, especially among agricultural farmers. The standard microcredit causes a mismatch in the timing between cash flow and credit flow for the typical farmer, who has little income until the harvest, whereas the standard microcredit requires payments in weekly installments. Agricultural investment is sequential but the loan disbursement happens only once, and farmers thus need to save part of the disbursed money for later investment, which would be difficult for present-biased farmers. In this context, we evaluate two modified microcredit programs that change the timing of repayment and loan disbursement by randomly offering share-cropping farmers in Bangladesh either (1) the standard microcredit, (2) crop credit that requires a one-time repayment after harvest, or (3) sequential credit that disburses credit sequentially and requires a one-time repayment after harvest. We found that the crop credit and sequential credit achieved higher uptake rates than the standard microcredit, and borrowers were more satisfied with these modified products. The sequential credit resulted in increased later investments among present-biased borrowers by alleviating their savings constraints. These new products did not worsen the repayment rate, and the sequential credit led to a smaller credit. We attribute this reduction in the credit size to the option value: the sequential credit allowed borrowers to adjust the final loan size after observing the productivity and expenditure shocks. Our simulation suggests that sequential credit with self-set limit that provides the option value and commitment devices will make the microcredit program more attractive to agricultural farmers.

Keywords: Microcredit; Commitment; Option value

Contact:
MACHIKITA, Tomohiro / MIENO, Fumiharu（CSEAS）, YANO, Go / KONO, Hisaki（GSE）, MIURA, Ken（Graduate Schools Agriculture）