Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups

Giné, Xavier; Karlan, Dean

doi:10.1016/j.jdeveco.2013.11.003

Cited by 214 publications

(207 citation statements)

References 27 publications

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“…The first part of our argument suggests that switching from EJ to IL can increase repayment rates if borrowers have su cient social capital. This prediction is consistent with the evidence from Giné and Karlan (2014). Although the average e↵ect on repayment of conversion to individual liability was zero, interestingly, repayment improved among borrowers with strong social ties, and deteriorated among borrowers with weak social ties, consistent with our theory.…”

Section: Introductionsupporting

confidence: 90%

“…Let us compare our theoretical results with the findings of Giné and Karlan (2014), namely, average repayment does not change significantly when there is a random switch from EJ to IL. However, borrowers with stronger social ties are less likely to default relative to those with weaker social ties after switching to IL lending, and that these two e↵ects average out to zero.…”

Section: Discussionmentioning

confidence: 74%

“…Our analysis is motivated by evidence from Giné and Karlan (2014) who find that randomly converting joint liability groups to individual liability at a Philippines MFI had no e↵ect on average repayment rates. We analyze how by leveraging the social capital of borrowers, individual liability lending (henceforth, IL) can mimic or even improve on the insurance arrangement reached under explicit joint liability (EJ), increasing repayment and borrower welfare.…”

Section: Introductionmentioning

confidence: 99%

“…4 Although the model highlights the potential costs of EJ, it is premature to write o↵ EJ as a valuable contractual tool. Thus far we have one high quality randomized study of contractual form (Giné and Karlan, 2014) in which EJ seems not to play an important role. However in our theoretical analysis there are always parameter regions over which EJ is the most e cient of the simple contracts we analyze.…”

Section: Introductionmentioning

confidence: 99%

“…Carpena et al (2010) analyze an episode in which a lender switched from IL to EJ and found a significant improvement in repayment performance. For the same reasons, Banerjee (2012) stresses the need for more empirical work in the vein of Giné and Karlan (2014) before concluding that EJ is no longer relevant.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Group lending without joint liability

Quidt

Fetzer

Ghatak

2016

Journal of Development Economics

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This paper contrasts individual liability lending with and without groups to joint liability lending. We are motivated by an apparent shift away from the use of joint liability by microfinance institutions, combined with recent evidence that a) converting joint liability groups to individual liability groups did not a↵ect repayment rates, and b) an intervention that increased social capital in individual liability borrowing groups led to improved repayment performance. First, we show that individual lending with or without groups may constitute a welfare improvement over joint liability, so long as borrowers have su cient social capital to sustain mutual insurance. Second, we explore how the lender's lower transaction costs in group lending can encourage insurance by reducing the amount borrowers have to pay to bail one another out. Third, we discuss how group meetings might encourage insurance, either by increasing the incentive to invest in social capital, or because the time spent in meetings can facilitate setting up insurance arrangements. Finally, we perform a simple simulation exercise, evaluating quantitatively the welfare impacts of alternative forms of lending and how they relate to social capital.

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Section: Introductionsupporting

confidence: 90%

Section: Discussionmentioning

confidence: 74%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Group lending without joint liability

Quidt

Fetzer

Ghatak

2016

Journal of Development Economics

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Kinship, gender and social links impact on micro group lending defaults

et al. 2023

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Joint liability aspires to improve micro-loan performance through the support of, and pressure from, the group borrowers. This paper examines how the group composition, in terms of the mixture of kinship (Family) ties and social (Friends and Neighbours) ties among the borrowers, affects the default rates. Using binary logistics regression and three machine learning models, responses from 507 group micro-loan borrowers from four major Moroccan cities were analysed. The results show that the stronger the family and kinship ties are within a loan group, the higher is the default rate. On the contrary, the stronger the social ties are among the group, the lower is the default rate.Other key findings include that the diversion of fund usage from investment to consumption is not found to significantly cause default. Also, loan default can be a consequence of borrowers' strategic choice rather than financial distress.As compared to the female members, male borrowers are found to be causing higher default rates. Interestingly, the gender-related default rates are lower when more of the male borrowers are only socially related. Finally, group size is found to be positively associated with default. Our findings can help microfinance institutions refine their lending policies and guidance on groups' composition and size to reduce default rates.

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Geographical Distance and Moral Hazard in Microcredit: Evidence From Colombia

Presbitero

Rabellotti

2013

J of Intl Development

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Recent years have seen an intense and critical debate about the impact of microcredit on entrepreneurial activities and poor households' welfare. This paper suggests that information asymmetries in the ex post loan arrangement between the microfinance institution and local borrowers could partially explain the limited impact of microcredit. The physical distance separating borrowers from the microfinance institution could be considered as a proxy of agency costs, increasing the costs of monitoring and easing moral hazard. The estimation of the effect of distance on the borrower's self‐assessed outcome of a microcredit project in Colombia confirms the presence of moral hazard in the microcredit market, with agency costs increasing with geographical distance. Copyright © 2013 John Wiley & Sons, Ltd.

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Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups

Cited by 214 publications

References 27 publications

Group lending without joint liability

Group lending without joint liability

Kinship, gender and social links impact on micro group lending defaults

Geographical Distance and Moral Hazard in Microcredit: Evidence From Colombia

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