Trust in Lending: Social Capital and Joint Liability Seed Loans in Southern Zambia

Bastelaer, Thierry van; Leathers, Howard

doi:10.1016/j.worlddev.2006.02.007

Cited by 75 publications

(55 citation statements)

References 4 publications

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“…More valuable ties translate into more credible threats of social sanctions. Strikingly, Van Bastelaer and Leathers (2006) find the opposite result based on data from Zambia, which, as they suggest, may be because the frequency of meetings is triggered by crisis conditions.…”

Section: Social Capital In Microfinance: a Brief Review Of The Literamentioning

confidence: 69%

Defining Social Collateral in Microfinance Group Lending

Postelnicu¹,

Hermes²,

Szafarz³

2014

Microfinance Institutions

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Microfinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. The literature on microfinance lacks a rigid framework for analyzing the consequences of using social collateral for borrowing behavior and repayment. This paper fills the gap by providing a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. Our approach is novel as we take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. between group members). One of the important features of our model is that we stress the impact of network configuration on the amount of social collateral pledged. Our model shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral. AbstractMicrofinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. The literature on microfinance lacks a rigid framework for analyzing the consequences of using social collateral for borrowing behavior and repayment. This paper fills the gap by providing a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. Our approach is novel as we take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. between group members). One of the important features of our model is that we stress the impact of network configuration on the amount of social collateral pledged. Our model shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral.

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Section: Social Capital In Microfinance: a Brief Review Of The Literamentioning

confidence: 69%

Defining Social Collateral in Microfinance Group Lending

Postelnicu¹,

Hermes²,

Szafarz³

2014

Microfinance Institutions

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“…These studies argue that social ties can embed trust, reciprocity and mutual support and that therefore they may be used as informal methods of support in case of need. The proxies for social ties used by these studies include the type of relationship (such as family, friends, or acquaintances; see, among others, Ahlin & Townsend, 2007;Al-Azzam et al, 2012;Griffin & Husted, 2015), duration of the relationship (Hermes et al, 2005;Wydick, 1999), meeting frequency (Feigenberg, Field, Pande, Rigol, & Sarkar, 2014;Feigenberg et al, 2013;Van Bastelaer & Leathers, 2006), geographic proximity (Karlan, 2007) These studies provide mixed results with respect to the relationship between social ties and repayment performance of group loans. While they add to our understanding of why and when social ties between group members may increase their repayment performance, they do not take into account the potential importance of ties with individuals outside the borrowing group (external ties).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

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

Postelnicu¹,

Hermes

Juárez

2018

The Journal of Development Studies

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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

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“…Social capital theories have been applied widely in public health policy (see Mladovsky and Mossialos (2008) or Moore et al (2006) for a review), and recent empirical studies have suggested that high levels of social capital are positively correlated with progress with agriculture (Brown and Ashman, 1996;Krishna, 2001;Lyon, 2000;Narayan and Pritchett, 1997;Uphoff and Wijayaratna, 2000), water and sanitation (Brown and Ashman, 1996) and microcredit (Anderson et al, 2002;Narayan and Pritchett, 1997;Van Bastelaer and Leathers, 2006) in developing countries. Here, it should be noted, however, that a recent study from the UK (Wolf et al, 2010) found that social networks could perpetuate rather than challenge the positive effects arising from networks in a situation with heat waves and therefore contribute to vulnerability rather than ameliorating it.…”

Section: Introductionmentioning

confidence: 99%

Informal networks and resilience to climate change impacts: A collective approach to index insurance

Trærup¹

2012

Global Environmental Change

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Trust in Lending: Social Capital and Joint Liability Seed Loans in Southern Zambia

Cited by 75 publications

References 4 publications

Defining Social Collateral in Microfinance Group Lending

Defining Social Collateral in Microfinance Group Lending

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

Informal networks and resilience to climate change impacts: A collective approach to index insurance

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