We examine the incentive effects of funding contracts on entrepreneurial effort and on allocative efficiency. We experiment with funding contracts that differ in the structure of investor repayment and, thus, in their incentives for the provision of entrepreneurial effort. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort d...

This paper explores the consequences of using supplier trade credit within a vertical relational contract. The downstream firm operates in an environment where shocks may make it unable to repay. The shocks are unobservable to the supplier, which creates an asymmetric information problem. Trade credit limits the supplier’s possibilities to punish the downstream firm and termination is used in e...

The paper describes the process and new methodology of a hybrid prediction system for business sequential data i.e. debt portfolio appraisal. Conducting the local area competence data mining approach, repayment values are predicted by means of combination of various data mining techniques. The methods include clustering of references, model selection and enrichment of input variables with predi...

Theories rationalizing joint liability lending are rich in implications for repayment rates. We exploit this fact to test four diverse models. We show that the models’ repayment implications do not always coincide. For example, higher correlation of output and borrowers’ ability to act cooperatively can raise or lower repayment, depending on the model. Data from Thai borrowing groups suggest th...

How do borrowers respond to improvements a lender’s ability to punish defaulters? We implemented a randomized field experiment in Malawi examining the impact of fingerprinting of borrowers, which improves the lender’s ability to withhold future loans from individuals who have previously defaulted. Study participants were smallholder farmers applying for agricultural input loans, and were random...

Recent evidence suggests heterogenous impacts of microfinance loans, with limited average effects on enterprise growth among the poor. One possibility is that the rigidity of the classic microcredit contract – widely held to be important for reducing default – inhibits investment in microenterprises. To explore these trade-offs, we provide experimental estimates of the consequences for client r...

This study was conducted with the objective of identifying the major determinants of loan repayment in Small Scale Enterprises (SSEs) with particular reference to SSEs in one of Kenya’s most dynamic informal business hub, Kariobangi Division in Nairobi. In order to achieve this objective, primarily data were collected from 50 randomly selected respondents by using questionnaires. Descriptive st...

Given the substantial amount of resources currently invested in microcredit programs, it is more important than ever to accurately assess the extent to which peer monitoring by borrowers faced with group liability contracts actually reduces moral hazard. We conduct a field experiment with women about to enter a group loan program in Paraguay and then gather administrative data on their repaymen...