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External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

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  • Luminita Postelnicu
  • Niels Hermes
  • Roselia Servin

Abstract

We investigate how external social ties, that is, social ties with individuals outside the borrowing group, determine loan repayments of individual borrowers in joint liability group lending. We measure the resources in external ties in terms of the informal risk insurance arrangement they embed. The ties borrowers have with individuals outside the group and the informal risk insurance arrangement they represent, help to survive in general, and repay their loans in particular. The risk of losing these ties increases the willingness to repay loans, that is, these ties can be regarded as a form of collateral to stimulate loan repayment. The extent to which these external ties are effectively pledged as collateral depends on the extent to which social networks of group members are overlapping: the more borrowers’ networks of external ties overlap (referred to as information channels), the higher the risk of losing the informal risk insurance arrangement in case of non-repayment. We use data from 802 mapped social networks of borrowers’ internal and external ties from a microfinance institution in Mexico. We find that group borrowers with external ties, representing a strong informal risk insurance arrangement while at the same time being information channels, have lower repayment problems

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  • Luminita Postelnicu & Niels Hermes & Roselia Servin, 2019. "External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico," Journal of Development Studies, Taylor & Francis Journals, vol. 55(8), pages 1784-1798, August.
    • Handle: RePEc:taf:jdevst:v:55:y:2019:i:8:p:1784-1798
    DOI: 10.1080/00220388.2018.1464148
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    Cited by:

    1. Selay Sahan & Euan Phimister, 2023. "Repayment performance of joint‐liability microcredits: Metropolitan evidence on social capital and group names," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 287-311, April.
    2. Xiaowo Wu & Jiangwei Tu & Boru Liu & Xi Zhou & Yanxiong Wu, 2022. "Credit Risk Evaluation of Forest Farmers under Internet Crowdfunding Mode: The Case of China’s Collective Forest Regions," Sustainability, MDPI, vol. 14(10), pages 1-17, May.
    3. Li, Qinghai & Yu, Yangcheng & Li, Yanru & Sun, Guanglin, 2023. "Heterogeneous Social network shape ability and willingness of rural residents to repay loans in China," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Al-Azzam, Moh’d & Parmeter, Christopher F. & Sarangi, Sudipta, 2020. "On the complex relationship between different aspects of social capital and group loan repayment," Economic Modelling, Elsevier, vol. 90(C), pages 92-107.
    5. Amani Gration Tegambwage & Pendo Shukrani Kasoga, 2022. "Loan repayment among group borrowers in Tanzania: the role of relationship quality," Future Business Journal, Springer, vol. 8(1), pages 1-11, December.
    6. Di Bu & Yin Liao, 2022. "Shaming Microloan Delinquents: Evidence from a Field Experiment in China," Management Science, INFORMS, vol. 68(5), pages 3768-3790, May.
    7. Panagiota Papadimitri & Fotios Pasiouras & Menelaos Tasiou, 2021. "Do National Differences in Social Capital and Corporate Ethical Behaviour Perceptions Influence the Use of Collateral? Cross-Country Evidence," Journal of Business Ethics, Springer, vol. 172(4), pages 765-784, September.

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