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No 2009:130:
Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups

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Xavier Giné () and Dean Karlan ()
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Xavier Giné: World Bank
Dean Karlan: Yale University

Abstract: Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in preexisting areas, and no change in default but fewer groups created after two years in the expansion areas.

Keywords: Microfinance; group lending; group liability; joint liability; social capital; microenterprises; informal economies; access to finance

Language: English

40 pages, 2009

Note: Available online at: http://www.econ.yale.edu/growth_pdf/cdp970.pdf

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RePEc:hhh:senior:2009_130 This page was generated 2009-11-02 09:56:59