The mismatch between credit repayments and income seasonality can create serious distortions.
However typically Micro-Finance Institutes (MFIs) do not provide any adjustments due to the
income seasonality. For instance in Northern Bangladesh Income and consumption downfalls
during the time of post-Aman rice plantation seasons are quite regular phenomenon which is
locally known as Monga. Poor landless agricultural wage laborers suffer the most due to this
seasonality and usually they face difficulty to smooth their consumptions. As a result it is
extremely difficult to arrange the regular weekly loan repayments of the micro-credit which
they have taken during the productive part of the year. Using field experiments through RCTs in
Northern Bangladesh we randomly assigned seasonality adjusted flexible micro-credits and
traditional rigid micro-credit to different borrowing groups. Examining the repayment behavior
of the borrowers in the context of geographical classifications and loan designs employing
both survey and experimental methods this study allows us to see the consequences of flexible
loan repayment rules during the lean periods and how they affect both MFIs and participating
borrowers. The findings of this study have important policy implications for MFIs and
policy-makers of the developing countries.
