Publication: Give Me a Pass: Flexible Credit for Entrepreneurs in Colombia
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2022-11
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2023-01-17
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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.
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“Brune, Lasse; Giné, Xavier; Karlan, Dean. 2022. Give Me a Pass: Flexible Credit for Entrepreneurs in Colombia. Policy Research Working Papers;10235. © World Bank. http://hdl.handle.net/10986/38477 License: CC BY 3.0 IGO.”
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