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The Role of Social Capital in Risk-Taking Decisions under Joint Liability Lending

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  • Richard A. Gallenstein
  • Jon Einar Flatnes
  • Abdoul G. Sam

Abstract

Joint liability group lending has come under scrutiny for failure to promote profitable risk-taking among smallholder borrowers in developing countries. One possible explanation for the absence of profitable risk-taking is the collateral-like effect of social capital, which borrowers fear losing if they default. In this paper, we use data from a framed field experiment and a survey administered in Tanzania to empirically investigate the relationship between social capital and risk-taking. We find that borrowers with more close relationships (family and friends) in their borrowing group increase risk-taking yet borrowers with more relationships that induce negative moral emotions (shame and guilt) reduce risk-taking.

Suggested Citation

  • Richard A. Gallenstein & Jon Einar Flatnes & Abdoul G. Sam, 2020. "The Role of Social Capital in Risk-Taking Decisions under Joint Liability Lending," Journal of Development Studies, Taylor & Francis Journals, vol. 56(12), pages 2194-2211, December.
    • Handle: RePEc:taf:jdevst:v:56:y:2020:i:12:p:2194-2211
    DOI: 10.1080/00220388.2020.1755654
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    Cited by:

    1. Richard A. Gallenstein & Jon Einar Flatnes & John P. Dougherty & Abdoul G. Sam & Khushbu Mishra, 2021. "The impact of index‐insured loans on credit market participation and risk‐taking," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 141-156, January.
    2. Patrick Behr & Jorge Jacob, 2024. "Neighbourhood social capital, account usage and savings behaviour in low‐income countries: Field experimental evidence from Senegal," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 84-108, January.

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