Why Risk It? The Effect of Risk and Time Preferences on Microfinance Loan Default

<p> Microfinance is widely recognized as a powerful method for poverty</p> <p>alleviation. However, little is known about the characteristics of those who</p> <p>default on their loans. Understanding the behavior of borrowers is an important</p> <p>component of mitigating adverse selection and the moral hazard of lending. Both</p> <p>of these concepts embody some of the greatest challenges faced by microfinance</p> <p>institutions, and they provide the major motivation for this study. Accordingly,</p> <p>the main objective of this research is to investigate whether non-delinquent</p> <p>borrowers and delinquent borrowers of a microfinance institution reveal any</p> <p>difference in their level of risk preference and time preference. This is tested</p> <p>through an artefactual field experiment with 97 borrowers from the National</p> <p>Microfinance Bank of the Hashemite Kingdom of Jordan. In the experiment,</p> <p>participants chose between six choices that measure their level of risk preference.</p> <p>In addition, participants selected a voucher that varies both in time and in value</p> <p>to capture their time preference levels. The results reveal that non-delinquent</p> <p>borrowers are more likely to be risk-seeking and impatient individuals when</p> <p>compared to delinquent borrowers, contradicting current literature on risk</p> <p>preference and time preference.</p>

Name thesis:degree_name

Master of Arts in International and Development Economics

Level thesis:degree_level

Thesis

Discipline thesis:degree_discipline

Economics

Year dc:date.available

2013

Author dc:creator

• Start, Nike

Contributors dc:contributor

• Dr. Bruce Wydick

• Risk-Aversion
• Time Preference
• Microfinance
• Experimental Economics
• Jordan
• Borrowing Behavior
• Behavioral Economics
• Other Economics

Repository record dc:identifier

https://repository.usfca.edu/thes/67

OAI identifier oai:identifier

oai:repository.usfca.edu:thes-1074