fbpx Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India | Harvard Kennedy School

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Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India, Rohini Pande, January 2013, Paper, "Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business oppor- tunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early re- payment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty." Link