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How far can we go? Determining the optimal loan size in progressive lending

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  • Nahla Dhib

    (LJAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Arvind Ashta

Abstract

The microcredit literature indicates that progressive lending should reduce default rates but that it may lead to over-indebtedness. In this study, we show that progressive lending may be safe over a range of loan sizes, beyond which a rational borrower would indulge in a strategic default. This range of loan sizes may be dependent on borrower characteristics (risk-taking, self-confidence, productivity, interest rates, subsistence needs) as well as the Microfinance Institution's strategy. Many crowdfunding sites are using artificial intelligence to assess borrower risk through social ratings. We are arguing that production functions of the borrowers also need to be added.

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  • Nahla Dhib & Arvind Ashta, 2020. "How far can we go? Determining the optimal loan size in progressive lending," Working Papers hal-03001840, HAL.
    • Handle: RePEc:hal:wpaper:hal-03001840
    Note: View the original document on HAL open archive server: https://hal.science/hal-03001840
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    References listed on IDEAS

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