Does Meeting Repay? Early Repayment and Default in Microfinance: Evidence from India May 16, 2008 IFMR - CMF Anup Roy & Emmerich Davies.

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Presentation transcript:

Does Meeting Repay? Early Repayment and Default in Microfinance: Evidence from India May 16, 2008 IFMR - CMF Anup Roy & Emmerich Davies

Our Research Sought to Answer One Question: Does Introducing Greater Flexibility in Meeting and Repayment Schedules Increase Loan Default Rates? The short answer is NO!...

Village Welfare Society & the Centre for Microfinance: In Partnership Since 2006

What Have We Done with VWS so far? 2006: Began First Intervention 2007: First Results from First Intervention and Began Second Intervention 2008: Began Third Intervention and Social Altruism Lottery

There was No Difference in the Rate of Default Between Clients on Weekly & Monthly Repayment Schedules

Clients on More Frequent Repayment Schedules were Far More Likely to Repay Earlier

Clients on Weekly Repayment Schedules Showed Far Higher Measures of Social Capital

Clients on Weekly Repayment Schedule Were Able to Allocate Labour and Smooth Consumption Better How many Hours did you work Yesterday?

Three more Questions Arose During the First Intervention: 1. Would Introducing Even More Flexibility Lead to More Productive Investments? The Motivation for our Second Intervention 2. Do Different Repayment Schedules Create Different Incentives for Clients to Repay Early? The Motivation for our Third Intervention. 3. Do Less Frequent Meetings lead to Declining Trust and Reliance on Fellow Groups Members in Times of Need (i.e. Less Social Capital Within Groups)? The Motivation for our Lotteries

The Second Intervention Investigates Whether Introducing a Lag Between the Disbursement of the Loan and the First Repayment Leads to More Productive Investments Begin Repayment As Soon as Loan is Disbursed Two Month Lag Before Begin to Repay

The Third Intervention Tries to Control for the Different Interest Rates Between Different Repayment Schedules Weekly Meeting and Repayment Schedule with 12.5% Interest Fee Five Weekly Meeting and Repayment Schedule with Interest Fee depending on loan size

Why Hold Lotteries? One of the most interesting questions in Microfinance today is how do group dynamics encourage repayment and financial discipline Wanted to see whether increased frequency of interaction translate into economically relevant social capital Designed lotteries in such ways that women could share risks amongst group members

Two Aborted Attempts in Designing a Lottery and then Success We are trying to design a lottery to test the effect of group risk-sharing We have run three pilots in the field, and believe we are ready to launch a full lottery amongst all 1,200 first intervention clients

Two Aborted Attempts in Designing a Lottery and then Success

Results from all Pilots

Second Pilot Drawings

Questions?