Repayment under Flexible Loan Contracts: Evidence based on High Frequency Data

49 Pages Posted: 7 Sep 2021

See all articles by Antonia Grohmann

Antonia Grohmann

Aarhus University

Friederike Lenel

University of Goettingen (Göttingen)

Steffen Herbold

affiliation not provided to SSRN

Date Written: May 23, 2021

Abstract

We study repayment and delinquency in the context of an alternative financial product that enables the purchase of a large asset---a solar panel home system---while offering complete repayment flexibility. Using a large administrative data set on daily repayment of 38,400 borrowers in Tanzania over 5.5 years, we perform unsupervised pattern analysis to classify repayment behavior. We show that borrowers with fluctuating incomes use the loan's flexibility more and that farmers in particular adjust their repayment to cash flow. We further find that use of flexibility is linked to repayment difficulties, yet does not automatically lead to default.
Our results indicate that low-income households can finance large assets through innovative financial approaches that allow aligning payments to financial circumstances.

Keywords: large assets, flexible repayment schemes, loan contracts, repayment patterns, high frequency data

JEL Classification: D14 (Personal Finance), G20 (Financial Institutions), C55 (Large Datasets)

Suggested Citation

Grohmann, Antonia and Lenel, Friederike and Herbold, Steffen, Repayment under Flexible Loan Contracts: Evidence based on High Frequency Data (May 23, 2021). Available at SSRN: https://ssrn.com/abstract=3917712 or http://dx.doi.org/10.2139/ssrn.3917712

Antonia Grohmann

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Friederike Lenel (Contact Author)

University of Goettingen (Göttingen) ( email )

Wilhelmsplatz 1
Göttingen, 37073
Germany

Steffen Herbold

affiliation not provided to SSRN

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