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Repayment performance in group-based credit programs in Bangladesh

Author

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  • Sharma, Manohar
  • Zeller, Manfred

Abstract

This paper analyzes the repayment rates of credit groups belonging to three group-based credit programs in Bangladesh: the Association for Social Advancement (ASA), the Bangladesh Rural Advancement Committee (BRAC), and the Rangpur Dinajpur Rural Service (RDRS). Hypotheses are drawn from economic theory relating group responsibility, and the resulting monitoring by peers, to a more effective enforcement of contractual obligations as well as to improved ability of the group as a whole to repay loans. Specific tests are performed on the following hypothesized determinants: group size, size of loans, degree of loan rationing, enterprise mix within groups, demographic characteristics, social ties and status, and occurrence of idiosyncratic shocks. Analysis is conducted using TOBIT maximum likelihood procedures. Implications for policy and institutional design are discussed.

Suggested Citation

  • Sharma, Manohar & Zeller, Manfred, 1996. "Repayment performance in group-based credit programs in Bangladesh," FCND discussion papers 15, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:fcnddp:15
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    References listed on IDEAS

    as
    1. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    2. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," The World Bank Economic Review, World Bank, vol. 4(3), pages 351-366, September.
    3. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
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    Cited by:

    1. Li, Shanjun & Liu, Yanyan & Deininger, Klaus W., 2009. "How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49497, Agricultural and Applied Economics Association.
    2. Galarza, Francisco, 2003. "El crédito solidario, el colateral social, y la colusión. Algunos apuntes [Group Lending, Social Collateral and Collusion. Some Notes]," MPRA Paper 30442, University Library of Munich, Germany.

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