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Group lending, repayment incentives and social collateral
Open accessAbstract
In this paper, we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment. This type of scheme, especially in the guise of the Grameen Bank in Bangladesh, has received increasing attention. We set up and analyze the ‘repayment game’ which group lending gives rise to. Our analysis suggests that such schemes have both positive and negative effects on repayment rates. The positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile. The negative effect arises when the whole group defaults, even when some members would have repaid under individual lending. We also show how group lending may harness social collateral, which serves to mitigate its negative effect.
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Citations
Cited by
Morduch, J. (1999) · Journal of Economic Literature · doi:10.1257/jel.37.4.1569 · Cited by 2,360
Availability and cost of credit for small businesses: Customer relationships and credit cooperatives
Angelini, P., Di Salvo, R., & Ferri, G. (1998) · Journal of Banking & Finance · doi:10.1016/s0378-4266(98)00008-9 · Cited by 548
Can Social Cohesion be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala
Wydick, B. (1999) · The Economic Journal · doi:10.1111/1468-0297.00457 · Cited by 333
The Economic Returns to Social Interaction: Experimental Evidence from Microfinance
Feigenberg, B., Field, E., & Pande, R. (2013) · The Review of Economic Studies · doi:10.1093/restud/rdt016 · Cited by 292
(2011) · The University of Bath Online Publications Store (The University of Bath) · Cited by 284
Metadata
- Authors
- Besley, T., & Coate, S.
- Venue
- Journal of Development Economics
- Publisher
- Elsevier BV
- Published
- 1995-02
- Volume
- 46
- Issue
- 1
- Pages
- 1-18
- ISSN
- 0304-3878 (ISSN-L)
- OpenAlex
- W1988448057
- Cited by
- 1,227
- References
- 0
- FWCI
- 30.34
- Type
- journal article
- Language
- en
- Open access
- hybrid
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- Besley, T., & Coate, S. (1995). Group lending, repayment incentives and social collateral. Journal of Development Economics. https://doi.org/10.1016/0304-3878(94)00045-e
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
