Using Repayment Data to Test Across Models of Joint Liability Lending
AbstractSpurred by its successful delivery of credit to poor borrowers in diverse areas of the developing world, joint liability lending has caught the imagination of development theorists and practitioners. Various theories have arisen to explain why joint liability group-based lending can be an improvement over traditional individual-based lending. Here we exploit the idea that if a model were true, the repayment rate would vary in a systematic way with various covariates. We thus use observed repayment rates to test across four representative and oft-cited models of joint liability lending. The theoretical part of this paper develops the models' implications for repayment and derives new ones, signing the derivative of a project choice, monitoring, default, or selection equation. For example, we find that several models imply that higher correlation of output can raise the observed repayment rate, and in some the ability to act cooperatively leads to lower repayment rates. More generally, the models agree on some dimensions and conflict on others. The empirical part uses survey data from 262 Thai joint liability groups of the Bank for Agriculture and Agricultural Cooperatives (BAAC) and from 2880 households of the same villages. Nonparametric, univariate tests and multivariate logits are used to evaluate the predictions of the models. A hybrid, partially linear procedure is used to understand any differences in the results between the two types of tests. We find that the Besley and Coate model of limited enforcement is strongly supported in the more rural, poorer region of Thailand covered by the data. In the more prosperous region, closer to Bangkok, support is found for the Stiglitz model of moral hazard and the Ghatak model of adverse selection.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0227.
Date of creation: Dec 2002
Date of revision:
Contact details of provider:
Web page: http://www.vanderbilt.edu/econ/wparchive/index.html
Micro-credit; adverse selection; moral hazard; joint liability lending;
Other versions of this item:
- Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, vol. 117(517), pages F11-F51, 02.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
- 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.
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.