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Repayment performance in group lending: Evidence from Jordan

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  • Al-Azzam, Moh'd
  • Carter Hill, R.
  • Sarangi, Sudipta

Abstract

Using data from a survey of 160 urban borrowing groups of the Microfund for Women in Jordan, we investigate the effect of screening, peer monitoring, group pressure, and social ties on borrowing groups' repayment behavior as an indirect test of different theoretical models. The dependent variable used captures the intensity of default measured by the total number of days of late repayment after each due date, allowing us to use count data models with cluster standard errors. As theory predicts, our empirical analysis suggests that peer monitoring, group pressure, and social ties reduce delinquency. The paper uncovers interesting evidence about the role of social ties and religion. Most notably, in an area where religion contributes to attitudes and beliefs of individuals, we find that religiosity improves repayment performance.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 2 ()
Pages: 404-414

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Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:404-414
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

Keywords: Group lending; Repayment performance; Count data;

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Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • G29 - Financial Economics - - Financial Institutions and Services - - - Other
  • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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  1. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  2. Alessandra Cassar & Luke Crowley & Bruce Wydick, 2007. "The effect of social capital on group loan repayment: evidence from field experiments," Economic Journal, Royal Economic Society, vol. 117(517), pages F85-F106, 02.
  3. 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, vol. 46(3), pages 599-620, April.
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  10. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
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  14. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
  15. Xavier Gine & Dean Karlan, 2006. "Group versus Individual Liability: A Field Experiment in the Philippines," Working Papers 940, Economic Growth Center, Yale University.
  16. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
  17. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  18. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
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Cited by:

  1. Altınok, Ahmet & Sever, Can, 2014. "Efficient Microlending without Joint Liability," MPRA Paper 56598, University Library of Munich, Germany.
  2. Berggren , Olle & Burzynska, Katarzyna, 2014. "The Impact of Social Beliefs on Microfinance Performance," Knut Wicksell Working Paper Series 2014/5, Knut Wicksell Centre for Financial Studies, Lund University.
  3. Baele, L. & Farooq, M. & Ongena, S., 2012. "Of Religion and Redemption : Evidence from Default on Islamic Loans (Replaces CentER DP 2010-136)," Discussion Paper 2012-014, Tilburg University, Center for Economic Research.
  4. Weber, Ron & Mußhoff, Oliver & petrick, Martin, 2014. "How flexible repayment schedules affect credit risk in agricultural microfinance," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187434, German Association of Agricultural Economists (GEWISOLA).
  5. Khandker, Shahidur R., 2012. "Grameen bank lending : does group liability matter ?," Policy Research Working Paper Series 6204, The World Bank.
  6. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.

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