Is Microfinance Too Rigid?

Authors: Dean Karlan & Sendhil Mullainathan

Abstract: Sameer is a farmer who subsists on three acres in rural India. While much of the land is fertile, nearly 50% of his income goes towards just the interest payments from money-lender loans, loans which are necessary to finance the crops he plants. Moreover, some of his land is unused because he cannot profitably finance irrigation at the money-lender’s rates (5 to 10% per month). As a result, his family’s nutrition and education are compromised.

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