The Impact of Flexible Credit for Entrepreneurs in Colombia

The income flows of micro and small business owners in developing countries are usually quite irregular and hard to predict. Microloans by microfinance institutions (MFIs) from around the developing world generally follow very rigid repayment schedules beginning immediately after the loan disbursement. Such repayment structures are unfit to support investments in technology or other solutions to expand the business, as these generally take longer to pay off. Additionally, these repayment structure does not match well with the seasonal and unpredictable income streams typical of microenterprises.

This project aims to contribute to current microfinance research and practices, through the design and testing of the viability and impact of improved loan products, which include flexibility in the repayment plan. Our study’s primary objective is to help microfinance institutions improve their financial products to better address the needs of their clients.

In this study, we will work with Kiva and Fundacion Mario Santo Domingo (FMSD) to design a flexible loan product and test it rigorously through an RCT. The flexible loan will allow clients to adjust their repayment plans within pre-defined limits, so that clients will be able to cope with unexpected shocks to their household or business income, and invest their loans more productively.

Policy implications 
Ongoing
Reference 
Karlan, D., Brune, L., Giné, X. (forthcoming). 'The Impact of Flexible Credit for Entrepreneurs in Colombia'. Ongoing research.