Repayment flexibility, contract choice, and investment decisions among Indian microfinance borrowers

Borrowers’ difficulties to comply with repayment obligations, for entrepreneurial and consumption motives, have pushed several microfinance institutions to introduce some degree of flexibility during the loan cycle. Yet, there is limited evidence on the impact of repayment flexibility; which type of borrowers are more likely to select into flexible repayments contracts; and how flexibility affects business performance. To understand the drivers and impact of the choice for greater flexibility in microfinance contracts, this project experiments with a set of new borrowers in Bihar and West Bengal by giving them the opportunity to choose between a standard, rigid individual lending contract and a flexible, more expensive one.

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