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Determinants of repayment performance in Indian micro-credit groups

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  • Deininger, Klaus
  • Liu, Yanyan

Abstract

Despite their potential importance and ease of modification, impacts of monitoring and loan recovery arrangements on micro-credit groups'repayment performance have rarely been studied. Data on 3,350 expired group loans in 300 Indian villages highlight that regular monitoring and audits, high repayment frequency, consumption smoothing support through rice credit, and having group savings deposited with the lender all significantly increase repayment rates. Estimated magnitudes of their effects vastly exceed those of members'socio-economic characteristics. Significantly lower repayment on loans originating in externally provided grant resources suggests that stringent monitoring will be essential for these to have a sustainable impact.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4885.

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Date of creation: 01 Mar 2009
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Handle: RePEc:wbk:wbrwps:4885

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Keywords: Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Strategic Debt Management;

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References

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  1. Jill Luoto & Craig McIntosh & Bruce Wydick, 2007. "Credit Information Systems in Less Developed Countries: A Test with Microfinance in Guatemala," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 55, pages 313-334.
  2. Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F11-F51, 02.
  3. Jonathan Conning & Christopher Udry, 2005. "Rural Financial Markets in Developing Countries," Working Papers, Economic Growth Center, Yale University 914, Economic Growth Center, Yale University.
  4. Joel M. Guttman, 2006. "Repayment Performance in Group Lending Programs: A Survey," NFI Working Papers 2006-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
  5. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(3), pages 351-66, September.
  6. Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 491-515, May.
  7. Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers, Princeton, Woodrow Wilson School - Development Studies 152, Princeton, Woodrow Wilson School - Development Studies.
  8. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F107-F133, 02.
  9. Zeller, Manfred, 1998. "Determinants of Repayment Performance in Credit Groups: The Role of Program Design, Intragroup Risk Pooling, and Social Cohesion," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 46(3), pages 599-620, April.
  10. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, Elsevier, vol. 60(1), pages 79-104, October.
  11. Luoto, Jill & McIntosh, Craig & Wydick, Bruce, 2007. "Credit Information Systems in Less Developed Countries: A Test with Microfinance in Guatemala," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 55(2), pages 313-34, January.
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Cited by:
  1. Sofia Pereira & Paulo Mourao, 2012. "Why does the microcredit borrowing rate differ across countries? A cross-country study," International Journal of Social Economics, Emerald Group Publishing, Emerald Group Publishing, vol. 39(8), pages 536-550, July.

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