nep-mfd New Economics Papers
on Microfinance
Issue of 2023‒03‒27
two papers chosen by
Rachita Gulati
IIT Roorkee

  1. How do Borrowers Respond to a Debt Moratorium? Experimental Evidence from Consumer Loans in India By Stefano Fiorin; Joseph Hall; Martin Kanz
  2. Customized Cash Transfers: Financial Lives and Cash-flow Preferences in Rural Kenya By Carolina Kansikas; Anandi Mani; Paul Niehaus

  1. By: Stefano Fiorin; Joseph Hall; Martin Kanz
    Abstract: Debt moratoria that allow borrowers to postpone loan payments are a frequently used tool intended to soften the impact of economic crises. We conduct a nationwide experiment with a large consumer lender in India to study how debt forbearance offers affect loan repayment and banking relationships. In the experiment, borrowers receive forbearance offers that are presented either as an initiative of their lender or the result of government regulation. We find that delinquent borrowers who are offered a debt moratorium by their lender are 4 percentage points (7 percent) less likely to default on their loan, while forbearance has no effect on repayment if it is granted by the regulator. Borrowers who are offered forbearance by their lender also have higher demand for future interactions with the lender: in a follow-up experiment conducted several months after the main intervention, demand for a non-credit product offered by the lender is 10 percentage points (27 percent) higher among customers who were offered rep ayment flexibility by the lender than among customers who received a moratorium offer presented as an initiative of the regulator. Overall, our results suggest that, rather than generating moral hazard, debt forbearance can improve loan repayment and support the creation of longer-term banking relationships not only for liquidity but also for relational contracting reasons. This provides a rationale for offering repayment flexibility even in settings where lenders are not required to provide forbearance. JEL: G2, G5, O12 Keywords: Debt forbearance, moral hazard, relational contracting
    Date: 2023
  2. By: Carolina Kansikas; Anandi Mani; Paul Niehaus
    Abstract: We examine the preferences of low-income households in Kenya over the structure of unconditional cash transfers. We find, first, that most prefer lumpier transfers, and many prefer delayed receipt—unlike the structures typical of safety-net programs, but consistent with evidence on the financial challenges of poverty. Second, poverty itself affects preferences: a little more financial slack when deciding increases desired delay. Finally, financial slack pays back: some delay—aligning transfers better with the seasonal cycle—increases deliberation, income, and goal progress 1.5 years later. Adapting cash transfer design to recipients’ decision-making environment could improve their financial choices and outcomes.
    JEL: D91 H53 I38 O2
    Date: 2023–02

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