Articlegreen2006

GROUP SIZE AND SOCIAL TIES IN MICROFINANCE INSTITUTIONS

Klaus Abbink A · Bernd Irlenbusch · Elke Renner B

151 citations0/0 files storedEconomic Inquiry

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Microfinance and Financial Inclusion Banking stability, regulation, efficiency Experimental Behavioral Economics Studies

Abstract

Microfinance programmes provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. In an experiment we investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide, whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects. We observe high repayments rates, which are robust across treatment. Group lending outperforms individual lending. Self-selected groups show a high but less stable willingness to contribute

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References

1981Credit Rationing in Markets with Imperfect Information 1999The Microfinance Promise 1990Peer Monitoring and Credit Markets 1995Group lending, repayment incentives and social collateral 2001Conflicts Over Credit: Re-Evaluating the Empowerment Potential of Loans to Women in Rural Bangladesh 1977Behavior, communication, and assumptions about other people's behavior in a commons dilemma situation.1996Who takes the credit? Gender, power, and control over loan use in rural credit programs in Bangladesh 1999The economics of lending with joint liability: theory and practice

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2010MICROFINANCE REVOLUTION: ITS EFFECTS, INNOVATIONS, AND CHALLENGES 2011Social ties and subjective performance evaluations: an empirical investigation 2006Reciprocity and Emotions When Reciprocators Know Each Other 2016Repayment behavior in peer‐to‐peer microfinancing: Empirical evidence from Kiva 2012Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans

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