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Keywords:

  • Microfinance;
  • Credit constraint;
  • Natural disasters;
  • Propensity score matching with multiple treatments;
  • South Asia;
  • Bangladesh
  • O16;
  • G21

Frequent and strictly scheduled repayments and savings in microfinance often deteriorate the liquidity of members in the face of negative shocks. Previous articles suggest the introduction of a contingent repayment system that allows such members to be rescheduled, but the unavailability of a suitable dataset makes it difficult to examine how it would actually work. This study is one of the first to evaluate the impact of this repayment system on household livelihood. In employing a unique dataset from Bangladesh, I show that rescheduling reduces the possibility of binding credit constraints and borrowing from moneylenders, and may also reduce transitory poverty. However, short-term rescheduling has insignificant effects. Indebted members with less liquid assets are more likely to be rescheduled.