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Can Self-Help Groups Really Be "Self-Help"?

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  • Brian Greaney
  • Joseph P. Kaboski
  • Eva Van Leemput

Abstract

This paper examines a cost-reducing innovation to the delivery of "Self-Help Group" microfinance services. These groups typically rely on outside agents to found and administer the groups although funds are raised by the group members. The innovation is to have the agents earn their payment by charging membership fees rather than following the status quo in which the agents are paid by an outside organization and instead offer free services to clients. The theory we develop shows that such membership fees could actually improve performance without sacrificing membership, simply by mitigating an adverse selection problem. Empirically, we evaluate this innovation in East Africa using a randomized control trial. We find that privatized entrepreneurs providing the self-help group services indeed outperform their NGO-compensated counterparts along several dimensions. Over time, they cost the NGO less and lead more profitable groups; also, households with access to privately-delivered groups borrow and save more, invest more in businesses, and may have higher consumption. Consistent with the theory, these privatized groups attract wealthier, more business-oriented members, although they attract no fewer members.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18970.

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Date of creation: Apr 2013
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Handle: RePEc:nbr:nberwo:18970

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  1. Paolo Casini & Lore Vandewalle, 2011. "Public Good Provision in Indian Rural Areas: the Returns to Collective Action by Microfinance Groups," Working Papers, University of Namur, Department of Economics 1119, University of Namur, Department of Economics.
  2. Orazio Attanasio & Britta Augsburg & Ralph de Haas & Emla Fitzsimons & Heike Harmgart, 2011. "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," IFS Working Papers, Institute for Fiscal Studies W11/20, Institute for Fiscal Studies.
  3. Jessica Cohen & Pascaline Dupas, 2010. "Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(1), pages 1-45, February.
  4. Joseph P. Kaboski & Robert M. Townsend, 2005. "Policies and Impact: An Analysis of Village-Level Microfinance Institutions," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(1), pages 1-50, 03.
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