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Repayment performance in group lending: Evidence from Jordan

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  • Al-Azzam, Moh'd
  • Carter Hill, R.
  • Sarangi, Sudipta

Abstract

Using data from a survey of 160 urban borrowing groups of the Microfund for Women in Jordan, we investigate the effect of screening, peer monitoring, group pressure, and social ties on borrowing groups' repayment behavior as an indirect test of different theoretical models. The dependent variable used captures the intensity of default measured by the total number of days of late repayment after each due date, allowing us to use count data models with cluster standard errors. As theory predicts, our empirical analysis suggests that peer monitoring, group pressure, and social ties reduce delinquency. The paper uncovers interesting evidence about the role of social ties and religion. Most notably, in an area where religion contributes to attitudes and beliefs of individuals, we find that religiosity improves repayment performance.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 2 ()
Pages: 404-414

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Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:404-414

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Group lending; Repayment performance; Count data;

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References

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  1. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
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  16. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  17. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  18. Alessandra Cassar & Luke Crowley & Bruce Wydick, 2007. "The effect of social capital on group loan repayment: evidence from field experiments," Economic Journal, Royal Economic Society, vol. 117(517), pages F85-F106, 02.
  19. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
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Cited by:
  1. Khandker, Shahidur R., 2012. "Grameen bank lending : does group liability matter ?," Policy Research Working Paper Series 6204, The World Bank.
  2. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.

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