Essays on repayment and microfinance
The first of the two essays in this dissertation uses primary data from Bangladesh to explore the role of microloan repayment frequency (weekly vs. bi-weekly, assigned randomly) on loan repayment performance of microfinance borrowers after controlling for their inherently distinct time preferences. The findings show that the borrowers’ individual time preference is an important determinant of their repayment behavior. Specifically, the repayment performance of present-biased borrowers improves significantly when they happen to be assigned to the weekly repayment schedule instead of the bi-weekly schedule. Also, irrespective of time preference, borrowers are found to invest more in new businesses under a more flexible (i.e., bi-weekly) repayment schedule. Overall, our findings suggest that instead of a "one size fits all" approach, by offering loans with a weekly (bi-weekly) repayment schedule matched to the present-biased (time-consistent) borrowers, the MFIs might be able to minimize their transaction costs while ensuring high repayment rates. This would also benefit the borrowers by enabling them to venture into new business investments.Using primary data from Bangladesh, the second essay seeks to examine two aspects of religiosity that might affect the microfinance borrowers’ repayment performance. First, whether individual religiosity influences repayment behavior. Second, whether the impact of religiosity changes with borrowers’ age, and level of community religiosity. The results show religiosity to be a significant determinant of a borrower’s repayment behavior, as individuals with higher religiosity are found to be better borrowers. Also, the positive impact of religiosity is stronger for older borrowers, and for borrowers who live in comparatively less religious community. These findings indicate that MFIs can take into consideration the degree of individual and community religiosity to decide on the intensity of supervision required for borrowers. Borrowers with higher level of religiosity can possibly go on with minimal level of supervision as they are less likely to default. This reduced supervision would reduce travel costs incurred by MFI staff, making operations more cost-effective. This will also help free up loan officers’ and borrowers’ time. Thus, MFIs and borrowers can take advantage of this and invest time to other productive activities. The MFIs can also make better use of the freed-up staff to increase coverage.