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Risk-Matching in Credit Groups: Evidence from Guatemala

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Author Info
Seth Carpenter (Federal Reserve Board)
Loic Sadoulet (Universite Libre de Bruxelles)
Abstract

With widely publicized high repayment rates, microfinance is gaining a great deal of attention. Using data from Guatemala, this paper examines risk matching in credit groups. The literature often assumes that joint-liability will lead groups to form homogeneously in risk, and that risk heterogeneity emerges only as a second-best. We find they do not, even accounting for matching frictions. Data on mutual-help within groups provides evidence consistent with the hypothesis that group lending provides insurance among borrowers. This intra-group insurance suggests that current credit contracts can be improved by incorporating insurance provisions. We discuss one possibility of such a contract briefly.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1310.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1310

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  1. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 251-69, September.
  2. Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Boston University - Institute for Economic Development 92, Boston University, Institute for Economic Development.
    Other versions:
  3. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
  4. Kremer, M. & Maskin, E., 1995. "Segregation by Skill and the Rise in Inequality," Papers e-95-7, Stanford - Hoover Institution.
  5. de Aghion, Beatriz Armendariz & Gollier, Christian, 2000. "Peer Group Formation in an Adverse Selection Model," Economic Journal, Royal Economic Society, vol. 110(465), pages 632-43, July. [Downloadable!] (restricted)
  6. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February. [Downloadable!] (restricted)
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  7. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 329-49, September.
  8. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug.. [Downloadable!] (restricted)
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  9. Huppi, Monika & Feder, Gershon, 1990. "The Role of Groups and Credit Cooperatives in Rural Lending," World Bank Research Observer, Oxford University Press, vol. 5(2), pages 187-204, July.
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  10. Sharma, Manohar & Zeller, Manfred, 1997. "Repayment performance in group-based credit programs in Bangladesh: An empirical analysis," World Development, Elsevier, vol. 25(10), pages 1731-1742, October. [Downloadable!] (restricted)
  11. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 351-66, September.
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