Understanding Customer Behavior of Multiple Borrowing Through Prospect Theory: Case Study on Indian Microfinance Clients
International Conference, 'Challenges to Inclusive Growth in the Emerging Economies', IIM, Ahmedabad, December 15-17, 2010
17 Pages Posted: 28 Dec 2010
Date Written: December 15, 2010
The phenomena of multiple borrowing in microfinance clients are widely prevalent so much so that it has become a major cause of concern and challenge for the microfinance industry. The researches have been sparse to create an understanding of why would microfinance clients take out multiple loans. Some of the empirical researches attempted to delve into the potential causes and it includes a mismatch between the size of the loan and the business/personal needs of the clients, a lack of financial sense or the clients' oversight, among many other reasons. The lack of research work to create theoretical understanding on the subject motivates the present research. The present research aims at understanding the client behavior which leads to multiple borrowing through widely applicable theories on behavioral finance 'Prospect Theory'. To achieve the objective, the research is designed to explain the theory and then inference of the theory is drawn to understand the underlying causes prompting the risk seeking behavior of the person that result into the situation of multiple borrowing. The understanding has important implications to design an appropriate mechanism to control multiple borrowing to the microfinance clients.
Suggested Citation: Suggested Citation