Risk preference and microfinance default: evidence from a field experiment in Mekong Delta

Abstract

This study aims to explore the link between risk preferences and microfinance default behavior. An interesting aspect of our study is to conduct a field experiment with 164 Vietnamese microfinance borrowers. We first elicit risk preferences for each individual using real payments. We then link the elicited individual’s risk preferences with their default behavior. The results show that defaulting borrowers are more likely to be risk averse rather than risk loving. Our study offers important implications to microfinance policy makers in developing countries.