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Field
Abstract
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Before
The income flows of micro and small business owners in developing countries are usually quite irregular and hard to predict. Microloans by microfinance institutions (MFIs) from around the developing world generally follow very rigid repayment schedules beginning immediately after the loan disbursement. Such repayment structures are unfit to support investments in technology or other solutions to expand the business, as these generally take longer to pay off. Additionally, these repayment structure does not match well with the seasonal and unpredictable income streams typical of microenterprises.
This project aims to contribute to current microfinance research and practices, through the design and testing of the viability and impact of improved loan products, which include flexibility in the repayment plan. Our study’s primary objective is to help microfinance institutions improve their financial products to better address the needs of their clients.
In this study we will work with Kiva and Fundación Mario Santo Domingo (FMSD) to design a flexible loan product and test it rigorously through an RCT. The flexible loan will allow clients to adjust their repayment plans within pre-defined limits, so that clients will be able to cope with unexpected shocks to their household or business income, and invest their loans more productively.
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After
The income flows of micro and small business owners in developing countries are usually quite irregular and hard to predict. Microloans by microfinance institutions (MFIs) from around the developing world generally follow very rigid repayment schedules beginning immediately after the loan disbursement. Such repayment structures are unfit to support investments in technology or other solutions to expand the business, as these generally take longer to pay off. Additionally, these repayment structure does not match well with the seasonal and unpredictable income streams typical of microenterprises.
This project aims to contribute to current microfinance research and practices, through the design and testing of the viability and impact of improved loan products, which include flexibility in the repayment plan. Our study’s primary objective is to help microfinance institutions improve their financial products to better address the needs of their clients.
In this study, we will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to design a flexible loan product and test it rigorously through an RCT. The flexible loan will allow clients to adjust their repayment plans within pre-defined limits, so that clients will be able to cope with unexpected shocks to their household or business income, and invest their loans more productively.
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Trial Start Date
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Before
November 01, 2015
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After
October 01, 2015
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JEL Code(s)
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Before
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After
D14, G21, O16
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Last Published
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Before
June 28, 2016 02:04 PM
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After
August 24, 2017 05:19 PM
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Intervention (Public)
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Before
We will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to offer improved loan products to a subset of the MFI clients. The improved loans will include pre-defined and limited flexibility to the loan repayment plan. So that clients will be able to adapt the repayment of their loan to the cycles of their businesses and other expected or unexpected events.
Fundacion Mario Santo Domingo will carry out a marketing campaign in which potential clients will be offered either standard or flexible loans. During the marketing campaign, a group of promoters will explain the characteristics of the loans offered by Fundacion Mario Santo Domingo to potential clients. In the case of flexible credit offer, the promoters will include an explanation on the functioning of this innovative loan. After hearing all the characteristics of the loan, the clients will be offered the option of getting inscribed to request a loan from the MFI.
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After
We will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to offer improved loan products to a subset of the MFI clients. The improved loans will include pre-defined and limited flexibility in the loan repayment plan. So that clients will be able to adapt the repayment of their loan to the cycles of their businesses and other expected or unexpected events.
Fundacion Mario Santo Domingo will carry out a marketing campaign in which potential clients will be offered either standard or flexible loans. During the marketing campaign, a group of promoters will explain the characteristics of the loans offered by Fundacion Mario Santo Domingo to potential clients. In the case of a flexible credit offer, the promoters will include an explanation of the functioning of this innovative loan. After hearing all the characteristics of the loan, the clients will be offered the option of getting inscribed to request a loan from the MFI.
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Field
Intervention Start Date
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Before
November 01, 2015
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After
October 01, 2015
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Field
Primary Outcomes (End Points)
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Before
Take up analysis:
1- Decision to formally apply a loan
2- Decision to take up a loan
Selection analysis:
1- Pre-loan characteristic of the borrowers
+ outcomes of following sub-section
Product analysis conditional on selection:
1- Investments of the borrowers
2- Usage of loan
3- Repayment behavior
4- Business activity
5- Stress levels
6- Capacity to face negative shocks
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After
Take up analysis:
1- Decision to formally apply for a loan
2- Decision to take up a loan
Selection analysis:
1- Pre-loan characteristic of the borrowers
+ Outcomes of the following subsection
Product analysis conditional on selection:
1- Investments of the borrowers
2- Usage of loan
3- Repayment behavior
4- Business activity
5- Stress levels
6- Capacity to face negative shocks
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Field
Experimental Design (Public)
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Before
We will randomly offer standard loans or flexible loans to both primary borrowers and clients of the partner MFI that want to renew their credits, using a two-stage randomization strategy.
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After
We will randomly offer standard loans or flexible loans to primary borrowers of the partner MFI, using a two-stage randomization strategy.
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Field
Planned Number of Clusters
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Before
Take up analysis: 14,000 potential borrowers
Selection and product analysis: up to 5,000 borrowers
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After
Take up analysis: approximatively 10,000 potential borrowers
Selection and product analysis: approximatively 3,000 borrowers
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Field
Planned Number of Observations
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Before
Take up analysis: 14,000 potential borrowers Selection and product analysis: up to 5,000 borrowers
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After
Take up analysis: approximatively 10,000 potential borrowers
Selection and product analysis: approximatively 3,000 borrowers
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Field
Sample size (or number of clusters) by treatment arms
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Before
Take up analysis - Treatment groups: 14,000 potential borrowers
1- Flexible Offer = 3,500 potential borrowers
2- Standard Offer = 10,500 potential borrowers
Adverse selection and product analysis - Treatment groups: 5,000 borrowers
A. Standard loan offer - Standard loan contract = 1,875 borrowers
B. Standard loan offer - Flexible loan contract = 1,875 borrowers
C. Flexible loan offer - Flexible loan contract = 1,250 borrowers
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After
Take up analysis - Treatment groups: approximatively 10,000 potential borrowers
1- Flexible Offer = approximatively 2,500 potential borrowers
2- Standard Offer = approximatively 7,500 potential borrowers
Adverse selection and product analysis - Treatment groups: approximatively 3,000 borrowers
A. Standard loan offer - Standard loan contract = 1,125 borrowers
B. Standard loan offer - Flexible loan contract = 1,125 borrowers
C. Flexible loan offer - Flexible loan contract = 750 borrowers
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Field
Intervention (Hidden)
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Before
We will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to offer improved loan products to a subset of the MFI clients. The improved loans will include pre-defined and limited flexibility to the loan repayment plan. So that clients will be able to adapt the repayment of their loan to the cycles of their businesses and other expected or unexpected events.
Fundacion Mario Santo Domingo will carry out a marketing campaign in which potential clients will be offered either standard or flexible loans. During the marketing campaign, a group of promoters will explain the characteristics of the loans offered by Fundacion Mario Santo Domingo to potential clients. In the case of flexible credit offer, the promoters will include an explanation on the functioning of this innovative loan. After hearing all the characteristics of the loan, the clients will be offered the option of getting inscribed to request a loan from the MFI.
Then, all loan applications will be reviewed by credit officers from the MFI. During the credit study, credit officers will review the characteristics of the loan to the potential clients. Finally, some of them will be approved a loan as per standard partner guidelines. After approval of the loan, a second randomization will take place. During this second randomization, some of the clients that were initially offered a standard loan will be upgraded to flexible loan.
Finally, the client will go the the MFI offices to do all the paperwork and accept the credit. At this stage, a member of the staff will again talk to all the clients to do a last reminder of the functioning and the characteristics of the loan. For those clients that will we switched from standard to flexible loan, a full explanation of the flexible loan will be done at this stage.
After receiving the credit, the clients with a flexible loan will have the option of using the repayment flexibility whenever they feel is convenient, within the pre-established limits.
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After
We will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to offer improved loan products to a subset of the MFI clients. The improved loans will include pre-defined and limited flexibility to the loan repayment plan. So that clients will be able to adapt the repayment of their loan to the cycles of their businesses and other expected or unexpected events.
Fundacion Mario Santo Domingo will carry out a marketing campaign in which potential clients will be offered either standard or flexible loans. During the marketing campaign, a group of promoters will explain the characteristics of the loans offered by Fundacion Mario Santo Domingo to potential clients. In the case of flexible credit offers, the promoters will include an explanation of the functioning of this innovative loan. After hearing all the characteristics of the loan, the clients will be offered the option of getting inscribed to request a loan from the MFI.
Then, all loan applications will be reviewed by credit officers from the MFI. During the credit study, credit officers will review the characteristics of the loan with the potential clients. Finally, some of them will be approved a loan as per standard partner guidelines. After approval of the loan, a second randomization will take place. During this second randomization, some of the clients that were initially offered a standard loan will be upgraded to flexible loan.
Finally, the client will go the MFI offices to do all the paperwork and accept the credit. At this stage, a member of the staff will again talk to all the clients to do the last reminder of the functioning and the characteristics of the loan. For those clients that will be switched from standard to flexible loan, a full explanation of the flexible loan will be done at this stage.
After receiving the credit, the clients with a flexible loan will have the option of using the repayment flexibility whenever they feel is convenient, within the pre-established limits.
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