Date of Graduation
Master of Arts in International and Development Economics
Dr. Bruce Wydick
Microfinance is widely recognized as a powerful method for poverty
alleviation. However, little is known about the characteristics of those who
default on their loans. Understanding the behavior of borrowers is an important
component of mitigating adverse selection and the moral hazard of lending. Both
of these concepts embody some of the greatest challenges faced by microfinance
institutions, and they provide the major motivation for this study. Accordingly,
the main objective of this research is to investigate whether non-delinquent
borrowers and delinquent borrowers of a microfinance institution reveal any
difference in their level of risk preference and time preference. This is tested
through an artefactual field experiment with 97 borrowers from the National
Microfinance Bank of the Hashemite Kingdom of Jordan. In the experiment,
participants chose between six choices that measure their level of risk preference.
In addition, participants selected a voucher that varies both in time and in value
to capture their time preference levels. The results reveal that non-delinquent
borrowers are more likely to be risk-seeking and impatient individuals when
compared to delinquent borrowers, contradicting current literature on risk
preference and time preference.
Start, Nike, "Why Risk It? The Effect of Risk and Time Preferences on Microfinance Loan Default" (2013). Master's Theses. 67.