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Give Me a Pass : Flexible Credit for Entrepreneurs in Colombia

Author

Listed:
  • Brune,Lasse Florian
  • Gine,Xavier
  • Karlan,Dean S.

Abstract

Microcredit promised business growth for small firms lacking access to banking loans. Although microcredit has reached millions, recent randomized evaluations find limited average business impacts. Critics often blame contract rigidity, specifically the fixed and frequent installments, for the lack of productive risk-taking. But such rigidity may instill borrower discipline. This study partnered with a Colombian lender that offered first-time borrowers a flexible loan that permitted delaying up to three monthly repayments. The study finds 0 effects for revenue and profits but increases in loan defaults. The evidence thus aligns with established microlender practice of offering rigid contracts to first-time borrowers.

Suggested Citation

  • Brune,Lasse Florian & Gine,Xavier & Karlan,Dean S., 2022. "Give Me a Pass : Flexible Credit for Entrepreneurs in Colombia," Policy Research Working Paper Series 10235, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10235
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    Cited by:

    1. Giorgia Barboni, 2024. "Innovations in the repayment structure of microcredit contracts," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 40(1), pages 129-138.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

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