Repayment Flexibility in Microcredit Contracts: Evidence from Bangladesh

Last registered on April 17, 2018

Pre-Trial

Trial Information

General Information

Title
Repayment Flexibility in Microcredit Contracts: Evidence from Bangladesh
RCT ID
AEARCTR-0002892
Initial registration date
April 15, 2018

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
April 17, 2018, 3:17 PM EDT

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

Locations

Region

Primary Investigator

Affiliation
Trinity College Dublin

Other Primary Investigator(s)

PI Affiliation
University of Alicante
PI Affiliation
Stockholm University

Additional Trial Information

Status
Completed
Start date
2015-01-20
End date
2017-08-15
Secondary IDs
Abstract
We study how the introduction of a new microcredit loan with greater repayment flexibility affects firm growth among existing borrowers, and how it changes the pool of borrowers who select into borrowing. BRAC, one of the largest microfinance institutions in the world, decided to pilot a new loan product with greater repayment flexibility in Bangladesh. The new, flexible loan contract allows borrowers with good credit history to delay 2 repayments (out of 12 monthly repayments) within their loan cycle. Using a cluster-randomized design, we evaluate the effect of the flexible loan contract on eligible borrowers’ investment and borrowing decisions and firm growth. Moreover, we track the borrowing decisions of a representative sample of microenterprises in treatment and control areas to study which types of firms become microfinance clients after the introduction of the new loan.
External Link(s)

Registration Citation

Citation
Battaglia, Marianna, Selim Gulesci and Andreas Madestam. 2018. "Repayment Flexibility in Microcredit Contracts: Evidence from Bangladesh." AEA RCT Registry. April 17. https://doi.org/10.1257/rct.2892-1.0
Former Citation
Battaglia, Marianna, Selim Gulesci and Andreas Madestam. 2018. "Repayment Flexibility in Microcredit Contracts: Evidence from Bangladesh." AEA RCT Registry. April 17. https://www.socialscienceregistry.org/trials/2892/history/28428
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
The most common microfinance contract offered by BRAC entails a 12-month loan repayment cycle with monthly instalments of equal size. The flexible loan contract allows instead eligible borrowers to delay up to two repayments within their loan cycle through the use of repayment vouchers. Eligible borrowers who qualify for the flexible loan contract are offered 2 vouchers that enable them to postpone 2 monthly repayments in their loan cycle. Specifically, by extending the cycle to 14 instead of 12 months the borrowers have 2 months during which they will not be required to make any repayments to BRAC. For example, if borrowers skip the first two instalments, the repayments start in month 3 and can continue up to month 14 (corresponding to a simple grace period contract) or be paid within the 12 months (corresponding to a back-loaded repayment schedule). If clients decide to use their vouchers to avoid any other instalment(s), the repayment in that month will be skipped and the full loan cycle can be extended by an additional month. Hence, the contract to be piloted not only encompasses the grace period contract but it also provides for greater flexibility as the borrowers can tailor-make their loan cycle to their needs (they will still be limited to delaying up to 2 repayments).
Intervention Start Date
2015-08-15
Intervention End Date
2017-08-15

Primary Outcomes

Primary Outcomes (end points)
For eligible borrowers (i.e. existing BRAC clients selected as eligible to receive the flexible loan by BRAC credit officers), the key outcomes of interest are: borrowing decisions (amount borrowed, likelihood to remain as BRAC clients, borrowing from other lenders or informal sources); lending or transfers to others; firm outcomes (amount of capital and labor inputs, revenues, costs, profits, number of businesses); household outcomes (income, consumption, household assets, land ownership); repayment behavior (late repayment, default).
For the representative sample of microenterprises (SME sample): likelihood to become BRAC clients, amount borrowed from BRAC.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
To evaluate the effects of the new loan contract, we randomized the piloting of the flexible loan contract at the BRAC branch office level. BRAC selected fifty branches for the study and credit officers in each branch identified borrowers that they deemed eligible for the flexible loan contract. After this, we randomly selected 25 branches as treatment and 25 as control. The randomization was stratified by geographical region. Prior to randomization, BRAC provided us with a list of the eligible clients in each branch. From this list, we randomly sampled 2,717 eligible borrowers. Of this sample, 1,115 were mainstream microfinance clients (called “Dabi” loan) and 1,602 were microenterprise clients (called “Progoti” loan). The latter are on average larger loans, requires collateral and could be taken by male or female borrowers; while the mainstream microfinance loans are only given to female borrowers and require no collateral.
Experimental Design Details
Randomization Method
The randomization was conducted by the research team on a computer.
Randomization Unit
The randomization was conducted at the BRAC branch office level.
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
50 BRAC branch offices.
Sample size: planned number of observations
We have 2,717 eligible borrowers (1,115 mainstream microfinance (“Dabi”) clients and 1,602 microenterprise “Progoti” clients); and 3,504 firms in the SME sample.
Sample size (or number of clusters) by treatment arms
25 BRAC branch offices in treatment and 25 BRAC branch offices in control.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials

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IRB

Institutional Review Boards (IRBs)

IRB Name
Ethics Committee of Univesita Bocconi
IRB Approval Date
2014-12-02
IRB Approval Number
N/A

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