lec12_with_answers_reducedtowherewegot

lec12_with_answers_reducedtowherewegot - Econ 138 Financial...

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Econ 138 Financial and Behavioral Economics Lecture 12: Finishing up Micro fi nance and MH Ulrike Malmendier UC Berkeley Tu, March 4, 2008
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1 Micro fi nance Explanations for the success of micro fi nance: Two explanations relate to what we covered / discussed previously in class: 1. Peer monitoring and 2. Collateral, though ‘social collateral.’
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Other explanations: 1. Progressive lending More below. 2. Weekly repayment schedules Often begin before project could produce much bene fi t, so partially paid for out of consumption stream. Borrowers left with lower balances after investment pays o ff so less incentive to not repay. Disciplines borrowers cash management. 3. Forced savings. Many banks force buyers to invest a certain amount monthly. Such accounts act as collateral that the bank can seize in the event of default.
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“Progressive Lending”: Refers to fact that successful repayment of one loan leads to preferential treatment for future loans while default will lead to no future loans.
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