Examining Micro Credit through the Behavioural Lens

• by Premasis Mukherjee and Akhand Tiwari
• Mar 23, 2015
• 1 min
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This Note explores the behavioural explanations that govern design intricacies of microcredit and also the anomalies in the business model.

Despite criticism over high interest rates, over-indebtedness and little to no impact on poverty alleviation, microcredit has reached impressive and continued growth worldwide. For long, behavioural economists opined that microcredit mechanisms work as behavioural levers on the same features that distinguish it from formal lending methodologies. This Note explores these behavioural explanations that govern design intricacies of microcredit and also the anomalies in the business model. Further, the Note explains how the intrinsic behavioural levers in the model synergises with the mental money management mechanisms of low income segment. Finally, it highlights necessity to use these fundamentals to re-define products, processes and methodologies to cater to the needs of low income people adequately.