Progressive Lending as an Enforcement Mechanism in Microfinance Programs

Microfinance programs are often characterized by progressive lending. A typical borrower receives at first very small amounts, which increase with good repayment conduct. The author rationalizes this feature of microfinance. It is shown that there is a strong tendency to split up projects into subprojects, and that it might be necessary to perform less productive projects first in order to keep pressure on the borrower to repay. Copyright Blackwell Publishing Ltd 2004..