Typical microcredit contracts involve inflexibilities characterised by frequent periodic repayments without the option to restructure the same depending on emerging contingencies. Such inflexibilities increase financial stress and severely curtail autonomy, resulting in detrimental economic and psychological consequences for the poor. This paper explores such causal linkages in depth primarily from the perspective of consumer psychology. Alternative loan structures that can simultaneously alleviate the ill effects of these inflexibilities in microcredit contracts, and simultaneously motivate the poor in investing the borrowed capital in more worthwhile enterprises, are subsequently suggested. Finally, potential theoretical, managerial and policy implications are discussed.
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