INTEREST RATES IN GROUP LENDING: A BEHAVIOURAL INVESTIGATION
Microfinance institutions (MFIs) serve more than 5 million households in developing countries. A crucial variable for MFI schemes is the interest rate to be charged from borrowers. This paper studies the behavioural impacts of the repayment burden on repayment performance. In a laboratory experiment, we vary the amount a borrower group has to repay and study how this affects free-riding behaviour. We can identify two counteracting effects: a higher repayment burden intensifies the incentives to free-ride as shirking saves more money. On the other hand, high-interest loans are less tolerant towards defaulters, which exerts a disciplining effect. Copyright 2006 Blackwell Publishing Ltd
Year of publication: |
2006
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Authors: | Abbink, Klaus ; Irlenbusch, Bernd ; Renner, Elke |
Published in: |
Pacific Economic Review. - Wiley Blackwell. - Vol. 11.2006, 2, p. 185-199
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Publisher: |
Wiley Blackwell |
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