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Do Peer Group Members Outperform Individual Borrowers? A Test of Peer Group Lending Using Canadian Micro-Credit Data

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  • Rafael Gomez
  • Eric Santor

Abstract

Microfinance institutions now serve over 10 million poor households in the developing and developed world, and much of their success has been attributed to their innovative use of peer group lending. There is very little empirical evidence, however, to suggest that group lending schemes offer a superior institutional design over lending programs that serve individual borrowers. The authors find empirical evidence that group lending does indeed lower borrower default rates more than conventional individual lending, and that this effect operates through the dual channels of selection into the peer lending program and, once inside the program, greater group borrower effort.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 03-33.

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Length: 58 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-33

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References

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Citations

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Cited by:
  1. Seth Freedman & Ginger Zhe Jin, 2014. "The Signaling Value of Online Social Networks: Lessons from Peer-to-Peer Lending," NBER Working Papers 19820, National Bureau of Economic Research, Inc.
  2. Hisaki Kono, 2006. "Is group lending a good enforcement scheme for achieving high repayment rates? Evidence from field experiments in vietnam," Artefactual Field Experiments 00075, The Field Experiments Website.
  3. ZOUARI, Zeineb & NABI, Mahmoud Sami, 2013. "Enhancing the Enforceability of Islamic Microfinance Contracts in OIC countries," MPRA Paper 49816, University Library of Munich, Germany.
  4. Kurosaki, Takashi & Khan, Hidayat Ullah, 2011. "Vulnerability of Microfinance to Strategic Default and Covariate Shocks:Evidence from Pakistan," PRIMCED Discussion Paper Series, Institute of Economic Research, Hitotsubashi University 10, Institute of Economic Research, Hitotsubashi University.
  5. Chowdhury, Shyamal & Chowdhury, Prabal Roy & Sengupta, Kunal, 2014. "Sequential lending with dynamic joint liability in micro-finance," Working Papers 2014-07, University of Sydney, School of Economics.

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