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Group Size and Social Ties in Microfinance Institutions

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Author Info

  • Abbink, Klaus

    (University of Nottingham)

  • Bernd Irlenbusch
  • Elke Renner

Abstract

Microfinance programmes provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. In an experiment we investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide, whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects. We observe high repayments rates, which are robust across treatment. Group lending outperforms individual lending. Self-selected groups show a high but less stable willingness to contribute.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 1.

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Date of creation: 04 Jun 2002
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Handle: RePEc:ecj:ac2003:1

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Web page: http://www.res.org.uk/society/annualconf.asp
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Related research

Keywords: microcredits; group lending; public goods; laboratory experiments; development economics;

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  1. Microfoundations of Microfinance
    by Peter Klein in Organizations and Markets on 2006-11-21 05:46:39
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