Flexible Microcredit: Role on Repayment and Seasonality

Of the primarily selected 90 villages, the randomization defines 12 villages for control, 24 for the flexible-1, 12 villages for the flexible-1+IGA, and the remaining 24 for the flexible-2. The research incorporates 1440 households from above 72 different villages (each village has a group of 20 members) of Gaibandha district; a poverty and seasonal food scarcity-prone area of northern Bangladesh. The baseline survey (panel-1) was executed during (July-September) 2011 with a long questionnaire that incorporates detailed information on different economic factors like household composition, health, education of the children, occupation, assets, migration experiences if etc.

The design holds two arms; one is a treatment arm and another is a control; which differs from the traditional and flexible loan repayment system during the lean period. The control arms will start repayment after two weeks of receiving the loan and repay the total amount within 45 regular installments at BDT 75 per week (excluding the last one which is BDT 60). Each weekly repayment is to be repaid by the borrower at the weekly group meeting. The first loan was issued in the first week of September 2011 among one-third of the subjects.
Under the first treatment “Flexible-1”, the borrowers shouldn’t give any repayment during the lean period, but after the period is over, his/her repayment will stands for BDT 100 per week, making their total repayment amount and period identical to those of the control group. As an alternative to the first treatment, one-third of the “flexible-1” also receives Income Generating Activities (IGA) support.

This group identifies as “flexible-1+IGA” in which productive assets have been distributed among the borrowers depending on their choices instead of cash along with best utilization advice with no further subsidy. Under the last flexibility treatment group “flexible-2”, the repayment schedule has been changed to three monthly installments for BDT 300 during the lean monga period. After the period is over, the borrowers will resume their previous repayment system for BDT 75 per week, ensuring that their total repayment amount and period will remain the same as that of the control group.

This research project was phased out last December 2013 after successfully completing its implementation period from September 2011-December 2013. Within this long time there has been conducted several rigorous and fruitful additional surveys after the baseline survey in July 2011; which are the first monga survey (panel-2) in November 2011, the follow-up survey (panel-3) in July-August 2012, the second monga survey (panel-4) and the last follow-up survey (end-line survey) in December 2013 respectively.

Yet, the ultimate findings of the project have not been analyzed, but there found several interesting findings like statistically no viable difference between the treatment arms in terms of default or overdue amounts. In the case of food consumption, char people have less opportunity of access to food than the mainland people results their lower average in different estimations, but surprisingly in some cases, the char people are also in a better position than the mainland people.

The findings of this study of seasonality adjusted loan repayment system will help the MFIs to implement such microfinance programs in rural areas where there is limited access to borrowing money from formal financial institutions like banks and other govt. support organizations.