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Good intentions pave the way to … the local moneylender

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  • Arnold, Lutz G.
  • Booker, Benedikt

Abstract

Access to microfinance entails a risk of over-indebtedness. A naïve present-biased micro-borrower may roll over debt after failure of an investment project financed with an MFI loan, even though she planned not to do so and would not have taken the MFI loan if she had been aware of the time inconsistency of her plan. Similarly, she may use a new loan to repay and end up over-indebted if she discounts the future too strongly relative to her true preferences.

Suggested Citation

  • Arnold, Lutz G. & Booker, Benedikt, 2013. "Good intentions pave the way to … the local moneylender," Economics Letters, Elsevier, vol. 118(3), pages 466-469.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:3:p:466-469
    DOI: 10.1016/j.econlet.2012.12.027
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    References listed on IDEAS

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    Cited by:

    1. Goedecke, Jann, 2018. "Contagious loan default," Economics Letters, Elsevier, vol. 170(C), pages 14-18.
    2. Ewura‐Adwoa Ewusie & Samuel Kobina Annim & William Brafu‐Insaidoo, 2021. "The density of microfinance institutions and multiple borrowing in Ghana: Are rural borrowers vulnerable?," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(8), pages 1217-1237, November.
    3. Chichaibelu, Bezawit Beyene & Waibel, Hermann, 2017. "Borrowing from “Pui” to Pay “Pom”: Multiple Borrowing and Over-Indebtedness in Rural Thailand," World Development, Elsevier, vol. 98(C), pages 338-350.
    4. Marc Labie & Carolina Laureti & Ariane Szafarz, 2016. "Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance," Working Papers CEB 15-020, ULB -- Universite Libre de Bruxelles.
    5. W. Nathan Green, 2020. "Regulating Over‐indebtedness: Local State Power in Cambodia's Microfinance Market," Development and Change, International Institute of Social Studies, vol. 51(6), pages 1429-1453, November.

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    More about this item

    Keywords

    Microfinance; Over-indebtedness; Hyperbolic discounting;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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