Date of Graduation

Spring 2013

Document Type

Thesis

Degree Name

Master of Arts in International and Development Economics

Department/Program

Economics

First Advisor

Dr. Bruce Wydick

Abstract

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.

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