Defining Social Collateral in Microfinance Group Lending
AbstractMicrofinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. The literature on microfinance lacks a rigid framework for analyzing the consequences of using social collateral for borrowing behavior and repayment. This paper fills the gap by providing a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. Our approach is novel as we take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. between group members). One of the important features of our model is that we stress the impact of network configuration on the amount of social collateral pledged. Our model shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 13-050.
Length: 31 p.
Date of creation: 19 Dec 2013
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Social Capital; Social Collateral; Group Lending; Repayment Performance;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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