the difference is not statistically significant at any point during or after the end of the original loan maturity (Figure 2c). Flexible borrowers repay a lower fraction of the principal amount throughout the original maturity, as both extension and no-extension passes are used, and this gap does not close after the end of the original loan period (Figure 2d).

We can draw the following conclusions: First, since default only appears _after_ the end of the _original_ loan period (Fig. 2a and b), only extension passes (rather than no-extension passes) are associated with negative repayment behavior. Second, because the share of flexible borrowers that _ever_ missed a payment is _not_ different compared to that of standard borrowers (Fig. 2c), but the share of flexible borrowers who miss a payment after the end of the original period increases (Fig. 2b), we conclude that the flexible borrowers driving the difference in default rates by missing scheduled payments after the original loan period also missed payments during the original loan period. Third, the lack of treatment effects on loan renewal is consistent with the repayment behavior above as the set of borrowers driving the additional default (only statistically significant at the end of the loan cycle) were already behind on their loans and likely to be ineligible for a follow-on loan.

Next, we examine business, financing and stress-related outcomes using the follow-up survey (Table 3 and 4). Column 1 reports the ATE described in Equation 2. There are no impacts on key outcomes such as sales, profits, or investment (Table 3). Column 6 reports the p-value of a difference in volatility (std. deviation) in sales and profits between the Flexible and Standard Contract groups, but none of the differences is statistically significant. Borrowers of the flexible loan appear to have slightly more businesses and to have started a secondary business. A new enterprise typically is an indication of risktaking, but of course could also be a diversification strategy, and thus we are not able to infer whether the increase in secondary businesses is indicative of flexible lending making risk-taking more palatable for the entrepreneurs.

Table 4 reports no changes in additional business or financing outcomes and no change in an overall loanrelated stress index, although borrowers of the flexible loan report thinking less about loan repayments and a decrease in anxiety in the days prior to loan payment deadlines. Table 4 also reports no change in a general stress index, though flexible loan borrowers report being less nervous or stressed.

In sum, we find no changes in revenues or profits in follow-up data collected about 10 months after loan disbursal but an increase in defaults among the Flexible Contract group. This group also reports lower stress and higher client satisfaction. Using Causal Forests to test for heterogenous treatment effects (Athey, Tibshirani, and Wager 2019; Chernozhukov et al. 2020), we do not find evidence that effects vary systematically as a function of important client or business characteristics pre-loan disbursement, such as gender, sales or household expenses.

# **5.** **<u>Conclusion</u>**

We study a flexible lending contract for first-time microcredit borrowers. We find that while flexibility was used by clients, there are no differences in the characteristics or take-up rates between flexible loan