Abstract
We study repayment and delinquency in the context of an alternative financial product that enables the purchase of a large asset---a solar panel home system---while offering complete repayment flexibility. Using a large administrative data set on daily repayment of 38,400 borrowers in Tanzania over 5.5 years, we perform unsupervised pattern analysis to classify repayment behavior. We show that borrowers with fluctuating incomes use the loan's flexibility more and that farmers in particular adjust their repayment to cash flow. We further find that use of flexibility is linked to repayment difficulties, yet does not automatically lead to default. Our results indicate that low-income households can finance large assets through innovative financial approaches that allow aligning payments to financial circumstances.
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