Testing Microfinance Theories: Field Experiments in Developing Countries

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This award funds a three year project to test economic theories about financial markets for the poor in developing countires. The tests will use randomized field experiments combined with collection of supplementary data. The research will improve our understanding of both how individuals make decisions over time and of how micro-lending policies can aid economic development.Research will be conducted at field sites in the Phillipines and South Africa. Reearch questions include (1) Is adverse selection present in South African lending markets? Is such adverse selection an important explanation for why poor South Africans default on loans? (2) Does the refinancing incentive of repeat loans inspire repayment? (3) Are individuals credit-constrained in South Africa and if so what is the impact from providing access to credit to such individuals? (4) Do commitment features to a savings product help individuals save more? What kinds of individuals are more likely to use such a product?The results of this research will give policy makers important information about whether and how micro-credit loans can help to encourage entrepreneurship and reduce poverty in developing countries.