Impact of Seasonality-Adjusted Flexible Microcredit on Repayment and Food Consumption: Experimental Evidence from Rural Bangladesh

This paper uses a randomized controlled trial (RCT) to evaluate whether seasonality-adjusted flexible microcredit leads to an increase in repayment problems for MFIs as well as whether it can increase and stabilize consumption of borrower households. For the study, microfinance groups were created in select villages in Bangladesh and provided with credit to be repaid on a weekly basis. For a random sub-sample of the borrowers, the repayment schedule was relaxed in two ways during the monga period, a period of reduced food consumption due to fall in employment. Under the first treatment, borrowers were given a temporary moratorium, while under the second treatment, the repayment scheme was changed to monthly repayment. This was followed by a survey of 1,440 households belonging to both groups before and after one year of intervention. The paper finds no statistically discernible difference between the groups in case of default, overdue amount, or repayment frequency and finds a strong positive impact of repayment flexibility on food consumption. The paper covers the following sections in detail:

• Experimental design with a focus on RCT strategy;
• Implementation of surveys and RCT interventions;
• Impact of flexibility on repayment behavior and household consumption;
• Summary and concluding remarks.