Are the poor really more trustworthy? A micro-lending experiment
Purpose – This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro-lending institutions grant loans to poor individuals countering well-known models of credit markets and credit rationing, such as those proposed by Stiglitz and Weiss. Micro-credit markets appear to be based on two conjectures: the poor are trustworthy, and their willingness to pay for credit is relatively high. Design/methodology/approach – The paper simulates trust-based lending in an experimental setting to determine whether the conjecture that the poor are trustworthy is plausible. By conducting the experiments in the USA, a wealthy developed country, and China, a developing country where formal micro-finance institutions have not established a visible presence, it is possible to test the conjecture and draw cross-cultural comparisons. Findings – The paper finds that while the absolute level of family income had no significant effect on repayment behavior, US borrowers that perceived themselves as having a family income that was relatively lower than other US households repaid at higher rates. Therefore, evidence was found that trustworthiness might be a function of perceived relative wealth or social status rather than the absolute level of wealth or income. Research limitations/implications – The research results may be difficult to generalize because of the experimental approach and use of students as participants. Practical implications – The paper includes implications for the administration of micro-credit loans in China and other developing nations. Originality/value – This paper experimentally tests a conjecture which appears to be the foundation of micro-credit markets.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 69 (2009)
Issue (Month): 1 (May)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=afr Email:
When requesting a correction, please mention this item's handle: RePEc:eme:afrpps:v:69:y:2009:i:1:p:67-87. See general 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: (Louise Lister)
If references are entirely missing, you can add them using this form.