Flexible repayment schedules for dairy clients in KAS Foundation

Principal Investigators: Sendhil Mullainathan (Harvard U.)
Research Team: Anand Shukla (CMF)
LEAD Centre: Centre for Microfinance
Focus Area: Credit
Project Geography: Odisha
Partner: KAS Foundation, Orissa
Status: Completed


Most MFIs offer loan products with fixed weekly or monthly repayment schedules. Fixed repayments, however, may not work for most clients, particularly if their income is subject to variations due to seasonal activities, business cycles, health reasons and other risks. KAS Foundation, for example, has a monthly repayment system for its self help group (SHG) clients. Most rural clients of KAS work in the dairy industry and face lean seasons in milk production. Mixed monthly repayment schedules may not be optimal for them as they do not correspond to the flow of income in their households.

CMF is conducting an experiment using a randomized design to evaluate the benefits of tailoring repayment schedules to the dairy industry on the following variables: business income, productivity, household’s ability to smooth consumption and to face shocks, and repayment rates. In order to analyze the trade-off involved introducing flexible repayment schedules, the experiment compares two flexible loan products to the existing product of KAS for dairy clients. The first loan product allows delayed payment by clients – by two principal installments at any point of time in the loan tenure of 24 months. The second loan product allows clients to prepay six principal installments during the lactation phase of cattle in order to enjoy flexibility in the later part of the loan tenure. A baseline survey has been completed and short quarterly household surveys are now being conducted to track income flows and understand the reasons for skipping principal installments. A final survey will take place after one loan cycle has been completed.

Related Resources
PROJECT DESCRIPTION – Flexible Repayment Schedules for Dairy Clients in KAS Foundation, Orissa