Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance
36 Pages Posted: 1 Oct 2012 Last revised: 31 Aug 2017
Date Written: June 3, 2016
The success of both microcredit and micro-savings products rests upon simplicity and standardization in order to stimulate client discipline. Meanwhile, these products lack flexibility. This paper attempts to make sense of behavioral product design in microfinance. We focus on the potential trade-offs between discipline and flexibility. While discipline devices encourage clients make payments duly on time, flexibility improves clients’ day-to-day money management and helps them cope with shocks. Our contribution is twofold. First, we highlight the evidence-based advantages and disadvantages of flexible products in microfinance. Second, we present best- practice examples of flexible products offered by microfinance institutions worldwide.
Keywords: microfinance, flexibility, commitment, discipline, incentive
JEL Classification: D03, D82, D91, G21, O12
Suggested Citation: Suggested Citation