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Repayment Flexibility: Contract Choice and Investment Decisions among Indian Microfinance Borrowers

Last registered on June 08, 2017
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Pre-Trial

Trial Information

General Information

Title
Repayment Flexibility: Contract Choice and Investment Decisions among Indian Microfinance Borrowers
RCT ID
AEARCTR-0002259
Initial registration date
June 08, 2017

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
June 08, 2017, 1:01 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
India
Region
Uttar Pradesh

Primary Investigator

Name
Khushboo Gupta
Affiliation
Institute of Financial Management and Research (IFMR), Lead
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Other Primary Investigator(s)

PI Name
Parul Agarwal
PI Affiliation
Institute of Financial Management and Research (IFMR), Lead
Contact Investigator
PI Name
Giorgia Barboni
PI Affiliation
Post-Doctoral Research Fellow, Julis-Rabinowitz Center for Finance and Public Policy, Woodrow Wilson School, Princeton University
Contact Investigator

Additional Trial Information

Status
On going
Start date
2016-04-01
End date
2017-06-30
Keywords
Finance & Microfinance
Additional Keywords
JEL code(s)
Secondary IDs
Abstract
Repayment rigidity has been shown to be particularly unfavourable for microfinance borrowers, especially in terms of investment potential: as most business activities take long to attain profitability, immediate repayments may be a great obstacle to entrepreneurship potential. Building on this premise, our intuition is that the provision of repayment flexibility will help innovation-oriented entrepreneurs who face serious growth constraints in the absence of an adequate repayment structure. To this end, the study has been set up as an RCT with a randomly selected group of microfinance borrowers under the individual-lending methodology being offered the possibility to choose between a flexible and a rigid repayment structure, although the rigid contract allowing for a lower degree of flexibility, will be cheaper and will require less collateral from the clients than the flexible one.
The impact of the provision of a flexible schedule in terms of production growth, employment and income will be observed. With this experiment, we intend to study how preferences for repayment flexibility relate to customers’ characteristics and business performance.
External Link(s)

Registration Citation

Citation
Agarwal, Parul, Giorgia Barboni and Khushboo Gupta. 2017. "Repayment Flexibility: Contract Choice and Investment Decisions among Indian Microfinance Borrowers ." AEA RCT Registry. June 08. https://doi.org/10.1257/rct.2259-1.0
Former Citation
Agarwal, Parul, Giorgia Barboni and Khushboo Gupta. 2017. "Repayment Flexibility: Contract Choice and Investment Decisions among Indian Microfinance Borrowers ." AEA RCT Registry. June 08. https://www.socialscienceregistry.org/trials/2259/history/18420
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
Intervention Start Date
2016-04-15
Intervention End Date
2017-06-15

Primary Outcomes

Primary Outcomes (end points)
The outcomes of the study are expected to be the impact the flexible schedule of payment has on production growth, employment and income. We intend to study how preferences for repayment flexibility relate to customers’ characteristics and business performance.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We intend to set up an exploratory study in which a sample of small entrepreneurs, borrowing for the first time at our partner MFI as individual borrowers, are offered the possibility to choose between a rigid, cheaper contract and a flexible, more expensive one. Our experiment is meant to get a first understanding on how the encouragement design works, and to bring preliminary evidence on the provision of a grace period. In this sense, we intend to achieve a proof of concept that could be used to design and implement the large-scale Randomized Controlled Trial. The latter will consist in randomizing our target population into two different treatments: one in which subjects are exogenously assigned a grace period, the other in which subjects are offered the choice between having or not a grace period. Subject borrowing in a rigid repayment schedule will be kept as control. The main objectives of the current exploratory study are therefore to carefully tailor the microfinance contracts (rigid versus flexible one), to assess the validity of the experimental design (whether there is enough heterogeneity among borrowers' types and subsequent choices), and to help making an accurate power calculation for the broad RCT.
Experimental Design Details
Randomization Method
The least squared distance method of randomisation was adopted to assign branches to treatment and control. The randomisation method adopted pairs branches together based on the minimum distance between two branches and randomly assigns them to treatment and control.
Randomization Unit
Data will be collected on a total of 800 households – 400 of whom have received the treatment intervention. Randomization of treatment and control branches was done at two stages – first for the 4 city branches and then the 24 non-city branches. The least squared distance method of randomisation was adopted to assign branches to treatment and control. Additionally, the sampling distribution at each of the treatment and control branches was fixed in proportion to the average monthly number of loans disbursed at each of the branches. The randomisation method adopted pairs branches together based on the minimum distance between two branches and randomly assigns them to treatment and control.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
800 households- 400 of whom receive the treatment
Sample size: planned number of observations
800 households- 400 of whom receive the treatment
Sample size (or number of clusters) by treatment arms
800 households- 400 of whom receive the treatment
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
School of Social Science and Philosophy ,Trinity college ,Dublin
IRB Approval Date
2014-08-27
IRB Approval Number
NA
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials