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Repayment performance in group lending: Evidence from Jordan

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Listed author(s):
  • 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
DOI: 10.1016/j.jdeveco.2011.06.006
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. Godquin, Marie, 2004. "Microfinance Repayment Performance in Bangladesh: How to Improve the Allocation of Loans by MFIs," World Development, Elsevier, vol. 32(11), pages 1909-1926, November.
  2. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  3. Laffont, Jean-Jacques & N'Guessan, Tchetche, 2000. "Group lending with adverse selection," European Economic Review, Elsevier, vol. 44(4-6), pages 773-784, May.
  4. Laffont, Jean-Jacques, 2003. "Collusion and group lending with adverse selection," Journal of Development Economics, Elsevier, vol. 70(2), pages 329-348, April.
  5. Xavier Gine & Dean Karlan, 2006. "Group versus Individual Liability: A Field Experiment in the Philippines," Working Papers 940, Economic Growth Center, Yale University.
  6. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
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  10. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
  11. 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.
  12. DeanS. Karlan, 2007. "Social connections and group banking," Economic Journal, Royal Economic Society, vol. 117(517), pages 52-84, 02.
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  16. 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.
  17. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
  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 463-475, July.
  19. Niels Hermes & Robert Lensink, 2007. "The empirics of microfinance: what do we know?," Economic Journal, Royal Economic Society, vol. 117(517), pages 1-10, 02.
  20. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
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Cited by:

  1. Luminita Postelnicu & Niels Hermes & Roselia Servin Juarez, 2015. "Social Capital and the Repayment of Microfinance Group Lending. A Case Study of Pro Mujer Mexico," Working Papers CEB 15-023, ULB -- Universite Libre de Bruxelles.
  2. Altınok, Ahmet & Sever, Can, 2014. "Efficient Microlending without Joint Liability," MPRA Paper 56598, University Library of Munich, Germany.
  3. Weber, Ron & Mußhoff, Oliver & Petrick, Martin, 2014. "How flexible repayment schedules affect credit risk in agricultural microfinance," DARE Discussion Papers 1404, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
  4. Luminita Postelnicu & Niels Hermes & Ariane Szafarz, 2013. "Defining Social Collateral in Microfinance Group Lending," Working Papers CEB 13-050, ULB -- Universite Libre de Bruxelles.
  5. Katarzyna Burzynska & Olle Berggren, 2015. "The Impact of Social Beliefs on Microfinance Performance," Journal of International Development, John Wiley & Sons, Ltd., vol. 27(7), pages 1074-1097, October.
  6. 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.
  7. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2014. "Of religion and redemption: Evidence from default on Islamic loans," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 141-159.
  8. Weber, Ron & Musshoff, Oliver, 2015. "Does pre-defined flexibility come with teh cost of higher credit risk? Evidence from agricultural micro lending in Madagascar," 2015 Conference, August 9-14, 2015, Milan, Italy 211905, International Association of Agricultural Economists.
  9. Hering, Imke & Musshoff, Oliver, 2015. "Dynamic Incentives in Microfinance – What about the Farmers?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204673, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
  10. Khandker, Shahidur R., 2012. "Grameen bank lending : does group liability matter ?," Policy Research Working Paper Series 6204, The World Bank.

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