Choice of Microfinance Contracts and Repayment Rates under Individual Lending: An Artefactual Field Experiment from Pakistan

2019:166

An artefactual field experiment in a semi-rural town of district Sialkot, Pakistan was conducted using the randomly drawn subjects from the pool of potential microfinance borrowers in that area. Two different types of contracts were employed including a Non-Interest Based- Profit Sharing (PS) and a Conventional Interest Based (IB) contracts. The subjects were split into two groups where one had the option to choose from the set of available contracts while the other did not. Strong preference for PS contracts over IB contract had been observed, however the repayment rates did not differ significantly across the contracts. The female subjects showed a higher repayment rate than the male subjects. At the same time, the enforcement and penalty treatments and religiosity of the subject had a significant and positive effect on the repayment behaviour.