Abstract
Abstract This paper summarizes recent research in performance-based microfinance, and outlines future directions for research. We use the term ‘microequity’ to refer to any small-enterprise financing contract in which the repayment owed in each instalment depends positively upon the variable performance of the enterprise. We summarize research from financial economics and development economics to highlight the importance of implicit insurance in microequity contracts, and present a theoretical framework to illustrate the potential of microequity in supporting capital investment and incentivizing asset use. We conclude by highlighting directions for future research in this emerging field of microfinance.
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