This paper studies the impact of introducing repayment flexibility in microfinance contracts. The author builds an adverse selection model that predicts the existence of a separating equilibrium where lenders are able to achieve higher profits by simultaneously offering a rigid and a flexible repayment schedule, instead of just a rigid contract.
Repayment Flexibility in Microfinance Contracts: Theory and Experimental Evidence on Take-up and Selection
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Financial Well-being and Social Protection