IDEAS home Printed from https://ideas.repec.org/p/wrk/warwec/1119.html
   My bibliography  Save this paper

Commercialization and the Decline of Joint Liability Microcredit

Author

Listed:
  • Fetzer, Thiemo

    (Department of Economics, University of Warwick)

Abstract

Numerous authors point to a decline in joint liability microcredit, and rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization–an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.

Suggested Citation

  • Fetzer, Thiemo, 2016. "Commercialization and the Decline of Joint Liability Microcredit," The Warwick Economics Research Paper Series (TWERPS) 1119, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1119
    as

    Download full text from publisher

    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2016/twerp_1119_fetzer.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Baland, Jean-Marie & Somanathan, Rohini & Wahhaj, Zaki, 2013. "Repayment incentives and the distribution of gains from group lending," Journal of Development Economics, Elsevier, vol. 105(C), pages 131-139.
    2. Jonathan de Quidt & Thiemo Fetzer & Maitreesh Ghatak, 2018. "Market Structure and Borrower Welfare in Microfinance," Economic Journal, Royal Economic Society, vol. 128(610), pages 1019-1046, May.
    3. Karlan, Dean S. & Zinman, Jonathan, 2009. "Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila," Center Discussion Papers 52600, Yale University, Economic Growth Center.
    4. Parikshit Ghosh & Debraj Ray, 2016. "Information and Enforcement in Informal Credit Markets," Economica, London School of Economics and Political Science, vol. 83(329), pages 59-90, January.
    5. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
    6. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    7. Ahlin, Christian & Lin, Jocelyn & Maio, Michael, 2011. "Where does microfinance flourish? Microfinance institution performance in macroeconomic context," Journal of Development Economics, Elsevier, vol. 95(2), pages 105-120, July.
    8. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2016. "Group lending without joint liability," Journal of Development Economics, Elsevier, vol. 121(C), pages 217-236.
    9. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    10. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    11. Karlan, Dean & Zinman, Jonathan, 2009. "Expanding Microenterprise Credit Access: Randomized Supply Decisions to Estimate the Impacts in Manila," Working Papers 68, Yale University, Department of Economics.
    12. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2007. "Reaching out: Access to and use of banking services across countries," Journal of Financial Economics, Elsevier, vol. 85(1), pages 234-266, July.
    13. repec:pri:rpdevs:gamespaper.pdf is not listed on IDEAS
    14. Mahreen Mahmud, 2020. "Repaying Microcredit Loans: A Natural Experiment on Liability Structure," Journal of Development Studies, Taylor & Francis Journals, vol. 56(6), pages 1161-1176, June.
    15. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2009. "Microfinance Meets the Market," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 167-192, Winter.
    16. Fenella Carpena & Shawn Cole & Jeremy Shapiro & Bilal Zia, 2013. "Liability Structure in Small-Scale Finance: Evidence from a Natural Experiment," The World Bank Economic Review, World Bank, vol. 27(3), pages 437-469.
    17. Pascaline Dupas & Jonathan Robinson, 2013. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 163-192, January.
    18. DeanS. Karlan, 2007. "Social connections and group banking," Economic Journal, Royal Economic Society, vol. 117(517), pages 52-84, February.
    19. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
    20. Niels Hermes & Robert Lensink, 2007. "The empirics of microfinance: what do we know?," Economic Journal, Royal Economic Society, vol. 117(517), pages 1-10, February.
    21. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
    22. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
    23. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, December.
    24. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    25. Abhijit Banerjee & Dean Karlan & Jonathan Zinman, 2015. "Six Randomized Evaluations of Microcredit: Introduction and Further Steps," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 1-21, January.
    26. Pascaline Dupas & Jonathan Robinson, 2013. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," American Economic Review, American Economic Association, vol. 103(4), pages 1138-1171, June.
    27. Craig McIntosh & Alain Janvry & Elisabeth Sadoulet, 2005. "How Rising Competition Among Microfinance Institutions Affects Incumbent Lenders," Economic Journal, Royal Economic Society, vol. 115(506), pages 987-1004, October.
    28. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    29. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2014. "Banks and Microbanks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(1), pages 1-53, August.
    30. Alessandra Cassar & Bruce Wydick, 2010. "Does social capital matter? Evidence from a five-country group lending experiment," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 715-739, October.
    31. Benjamin Feigenberg & Erica Field & Rohini Pande, 2013. "The Economic Returns to Social Interaction: Experimental Evidence from Microfinance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1459-1483.
    32. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2013. "Financial Development in 205 Economies, 1960 to 2010," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(2), pages 17-36.
    33. Allen, Treb, 2016. "Optimal (partial) group liability in microfinance lending," Journal of Development Economics, Elsevier, vol. 121(C), pages 201-216.
    34. Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, vol. 117(517), pages 11-51, February.
    35. Giné, Xavier & Karlan, Dean S., 2014. "Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups," Journal of Development Economics, Elsevier, vol. 107(C), pages 65-83.
    36. Guillermo Baquero & Malika Hamadi & Andréas Heinen, 2018. "Competition, Loan Rates, and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(5), pages 893-937, August.
    37. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2015. "The Impacts of Microfinance: Evidence from Joint-Liability Lending in Mongolia," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 90-122, January.
    38. Mersland, Roy & Øystein Strøm, R., 2009. "Performance and governance in microfinance institutions," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 662-669, April.
    39. Jonathan de Quidt & Thiemo Fetzer & Maitreesh Ghatak, 2018. "Market Structure and Borrower Welfare in Microfinance," Economic Journal, Royal Economic Society, vol. 128(610), pages 1019-1046, May.
    40. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2016. "Group lending without joint liability," Journal of Development Economics, Elsevier, vol. 121(C), pages 217-236.
    2. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    3. Berns, John P. & Shahriar, Abu Zafar M. & Unda, Luisa A., 2021. "Delegated monitoring in crowdfunded microfinance: Evidence from Kiva," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Ahlin, Christian, 2015. "The role of group size in group lending," Journal of Development Economics, Elsevier, vol. 115(C), pages 140-155.
    5. Giné, Xavier & Karlan, Dean S., 2014. "Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups," Journal of Development Economics, Elsevier, vol. 107(C), pages 65-83.
    6. Jonathan de Quidt & Thiemo Fetzer & Maitreesh Ghatak, 2018. "Market Structure and Borrower Welfare in Microfinance," Economic Journal, Royal Economic Society, vol. 128(610), pages 1019-1046, May.
    7. Jonathan de Quidt & Thiemo Fetzer & Maitreesh Ghatak, 2018. "Market Structure and Borrower Welfare in Microfinance," Economic Journal, Royal Economic Society, vol. 128(610), pages 1019-1046, May.
    8. Allen, Treb, 2016. "Optimal (partial) group liability in microfinance lending," Journal of Development Economics, Elsevier, vol. 121(C), pages 201-216.
    9. Simon Zaby, 2019. "Science Mapping of the Global Knowledge Base on Microfinance: Influential Authors and Documents, 1989–2019," Sustainability, MDPI, vol. 11(14), pages 1-21, July.
    10. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    11. Dhami, Sanjit & Arshad, Junaid & al-Nowaihi, Ali, 2022. "Psychological and social motivations in microfinance contracts: Theory and evidence," Journal of Development Economics, Elsevier, vol. 158(C).
    12. Orazio Attanasio & Britta Augsburg & Ralph De Haas, 2019. "Microcredit Contracts, Risk Diversification and Loan Take-Up," Journal of the European Economic Association, European Economic Association, vol. 17(6), pages 1797-1842.
    13. Karel Janda & Pavel Zetek, 2015. "Mikrofinanční revoluce: kontroverze a výzvy [Microfinance Revolution: Controversies and Challenges]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(1), pages 108-130.
    14. Peter J. Simmons & Nongnuch Tantisantiwong, 2022. "The Socially Optimal Loan Auditing with Multiple Projects," Discussion Papers 22/07, Department of Economics, University of York.
    15. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    16. Mahreen Mahmud, 2020. "Repaying Microcredit Loans: A Natural Experiment on Liability Structure," Journal of Development Studies, Taylor & Francis Journals, vol. 56(6), pages 1161-1176, June.
    17. Emilios Galariotis & Christophe Villa & Nurmukhammad Yusupov, 2011. "Recent Advances in Lending to the Poor with Asymmetric Information," Journal of Development Studies, Taylor & Francis Journals, vol. 47(9), pages 1371-1390, July.
    18. Ahmad, Syedah & Lensink, Robert & Mueller, Annika, 2020. "The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance," World Development, Elsevier, vol. 136(C).
    19. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).
    20. Fujimoto, Junichi & Lee, Junsang, 2020. "Optimal self-financing microfinance contracts when borrowers have risk aversion and limited commitment," Journal of Mathematical Economics, Elsevier, vol. 91(C), pages 60-79.

    More about this item

    Keywords

    microfinance; joint liability; commercialization; market structure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:1119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Margaret Nash (email available below). General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.