External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

Abstract

We investigate how external social ties, that is, social ties with individuals outside the borrowing group, determine loan repayments of individual borrowers in joint liability group lending. We measure the resources in external ties in terms of the informal risk insurance arrangement they embed. The ties borrowers have with individuals outside the group and the informal risk insurance arrangement they represent, help to survive in general, and repay their loans in particular. The risk of losing these ties increases the willingness to repay loans, that is, these ties can be regarded as a form of collateral to stimulate loan repayment. The extent to which these external ties are effectively pledged as collateral depends on the extent to which social networks of group members are overlapping: the more borrowers' networks of external ties overlap (referred to as information channels), the higher the risk of losing the informal risk insurance arrangement in case of non-repayment. We use data from 802 mapped social networks of borrowers' internal and external ties from a microfinance institution in Mexico. We find that group borrowers with external ties, representing a strong informal risk insurance arrangement while at the same time being information channels, have lower repayment problems

Effect of Financial Knowledge and Skills on the Financial Sustainability of Affirmative Groups in Kapseret Sub County

“…β=0.170, p≤0.05). The study therefore rejected the null hypothesis and accepted the alternate hypothesis which showed that there was a relationship between financial knowledge and skills and financial sustainability of affirmative groups.The study findings concur with study done by Postelnicu, Hermes, and Servin (2019) examined external social ties and loan repayment of group lending members of Pro Mujer in Mexico.…”

“…The researchers found that financial knowledge had a significant effect on financial sustainability of affirmative groups in Ethiopia. Postelnicu, Hermes, and Servin (2019) examined external social ties and loan repayment of group lending members of Pro Mujer in Mexico. The study aimed at establishing whether external social ties had effect on loan repayment.…”

Do National Differences in Social Capital and Corporate Ethical Behaviour Perceptions Influence the Use of Collateral? Cross-Country Evidence

“…This dimension relates to the social capital view arguing that cross-country variations in interpersonal and institutional trust influences perceptions on the likelihood or ability of counter parties in business to act opportunistically (Dowling et al, 2019). For example, Postelnicu et al (2019) conclude that the risk of losing external social ties increases the willingness to repay loans, suggesting that such ties could serve as a substitute for collateral. Furthermore, high levels of bridging capital facilitate the smooth function of the economy as they represent the level of trust required for institutions and legal systems to prosper (Legatum Institute, 2017).…”

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