What is it about?
This study examines the demand of microcredit among ultra-poor households in northern Bangladesh. We implemented a field experiment to identify what type of credit is best suited to their demand. We found that the uptake rate by the ultra-poor is the lowest for regular small cash credit, followed by in-kind credit. We also found that the ultra-poor are significantly more likely to join a microcredit programme than the moderately poor if a grace period with longer maturity is attached to a large amount of credit, irrespective of whether the credit is provided in cash or in kind.
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Why is it important?
This is one of the first study evaluating credit demand and contract design issue of the ultra-poor in Bangladesh.
Perspectives
Grameen style group-based lending is a successful micro-credit model but such a strict and inflexible contract design may not be suitable for ultra-poor who have infrequent and irregular income. This study explores the opportunity to design better credit contract design suitable for the ultra-poor.
Dr. Abu S. Shonchoy
New York University
Read the Original
This page is a summary of: How Does Contract Design Affect the Uptake of Microcredit among the Ultra-poor? Experimental Evidence from the River Islands of Northern Bangladesh, The Journal of Development Studies, April 2016, Taylor & Francis,
DOI: 10.1080/00220388.2016.1156092.
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