EXPERIMENTS ON REPAYMENT SCHEDULES IN VWS, WEST BENGALPrincipal Investigators: Rohini Pande (Harvard Kennedy School), Erica Field (Duke University)
Research Team: Anup Roy (CMF), Sitaram Mukherjee
LEAD Centre: Centre for Microfinance (CMF)
Focus Area: Credit
Project Geography: West Bengal
Partner: Village Welfare Society (VWS), West Bengal
Status: Completed – Follow-up study in process
Most of the MFIs operate on the received wisdom that weekly repayment schedules and the consequent system of weekly center meetings are critical for ensuring low levels of default. However, this imposes a very high cost structure on the MFI and requires it to maintain a very large staff to client ratio. Also weekly repayment schedules may not suit the income flows of households engaged in some activities, for example with monthly revenue streams or businesses that sell on credit. Instead, if infrequent repayments do not produce an increase in default rates, or if the cost of the increase in default is lower than the savings in transaction costs, it may be worthwhile for the MFI to examine it as an alternative to the weekly model. The Centre, in collaboration with Village Welfare Society (VWS), West Bengal, has started a study in April 2006 that examines the influence of repayment frequency on household’s welfare and economic activity as well as the delinquency rates of the microcredit clients of VWS.
WORKING PAPER: Does Microfinance Repayment Flexibility Affect Entrepreneurial Behavior and loan default?
POLICY MEMO: The Impact of Introducing a Grace Period into Microfinance Loan Contracts
POLICY MEMO: Microfinance and Social Capital