Reports
Discussion Papers
No.460 Impact of Seasonality-adjusted Flexible Microcredit on Repayment and Food Consumption: Experimental Evidence from Rural Bangladesh
by Abu S. SHONCHOY and Takashi KUROSAKI
March 2014
ABSTRACT
The
mismatch
between
credit
repayments
and
income
seasonality
poses
a
challenge
for
microfinance
institutions
(MFIs)
working
in
developing
countries.
For
instance,
in
northern
Bangladesh,
income
and
consumption
downfalls
during
the
lean
season
after
the
transplanting
of
major
paddy
crops
are
a
serious
threat
to
a
household’s
economy.
Poor
landless
agricultural
wage
laborers
suffer
the
most
owing
to
this
seasonality
as
they
face
difficulties
in
smoothing
their
consumption.
However,
in
designing
microcredit
products,
MFIs
do
not
usually
provide
flexibility
or
seasonal
adjustment
during
the
lean
season.
This
is
mainly
because
MFIs
are
afraid
that
such
flexibility
might
break
the
repayment
discipline
of
borrowers,
resulting
in
higher
default
rates.
We
thus
conducted
a
randomized
controlled
trial
in
2011-12
in
northern
Bangladesh
to
empirically
test
whether
seasonality-adjusted
flexible
microcredit
leads
to
an
increase
in
repayment
problems
for
MFIs
as
well
as
whether
it
can
increase
and
stabilize
consumption
of
borrower
households.
Our
results
suggest
no
statistically
discernible
difference
among
the
treatment
arms
in
case
of
default,
overdue
amount,
or
repayment
frequency.
On
the
other
hand,
we
find
no
positive
impact
of
repayment
flexibility
on
immediate
food
consumption
during
the
period
of
seasonality,
except
for
in-kind
full
moratorium
treatment
group.
After
a
year
of
initial
intervention,
however,
we
see
positive
changes
in
food
intake
during
the
lean
season.
Thus,
our
preliminary
results
are
in
favor
of
seasonality-adjusted
flexible
microcredit
Keywords:
Microcredit,
Default,
Seasonality,
Consumption
Smoothing,
Bangladesh.
JEL
classification:
G21,
O16,
D12.
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.