EVALUATION OF CONTINGENT REPAYMENTS IN MICROFINANCE: EVIDENCE FROM A NATURAL DISASTER IN BANGLADESH

Authors


  • The author is grateful for financial support from the Foundation for Advanced Studies on International Development. The author would also like to express his gratitude to the editor and two anonymous referees of the journal; and Yasuyuki Sawada, Hidehiko Ichimura, and Amy Ickowitz for helpful and constructive suggestions. The paper also benefited from the comments of Yutaka Arimoto, Koichi Fujita, Masayoshi Honma, Hiro Ishise, Takahiro Ito, Hisaki Kono, Sarah Pearlman, Takeshi Sakurai, Chikako Yamauchi, Junfu Zhang, and participants at the Eastern Economic Association 2007, the International Atlantic Economic Conference 2007, and seminars at Clark University, Tsukuba University, and the University of Tokyo (Department of Economics and Department of Agriculture). Any errors and omissions are solely the responsibility of the author.

Abstract

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.

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