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How Group Lending Affects Innovation: Evidence From Ethiopia

Author

Listed:
  • ROBERT M HIRTH

    (Department of Management, High Point University, 1 University Parkway, High Point, North Carolina 27268, United States)

  • DAANISH PESTONJEE

    (Department of Management and Leadership, Miami University, 83 North Patterson Avenue, Oxford, Ohio 45056, United States)

Abstract

Microlending has become one of the primary interventions intended to alleviate poverty in the developing world. However, empirical results of the benefits of microlending have been disappointing. This article proposes the common microlending practice of group lending reduces the likelihood borrowers will engage in innovative activities, which has been demonstrated to be a key factor in improving borrower outcomes. The hypotheses proposed are tested with data collected from interviews with 340 microloan borrowers in Ethiopia. The findings are consistent with a weak sorting effect where innovative individuals are less likely to participate in group loans than individual loans, and a social pressure effect where innovative individuals taking group loans are pressured to behave less innovatively than their peers taking individual loans.

Suggested Citation

  • Robert M Hirth & Daanish Pestonjee, 2016. "How Group Lending Affects Innovation: Evidence From Ethiopia," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-15, December.
    • Handle: RePEc:wsi:jdexxx:v:21:y:2016:i:04:n:s1084946716500230
    DOI: 10.1142/S1084946716500230
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    References listed on IDEAS

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