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Joint-liability borrowing decisions under risk: Empirical evidence from rural microfinance in Ethiopia

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  • Berhane Tesfay, G.
  • Gardebroek, Cornelis

Abstract

This paper investigates borrowing decisions of rural households from a microfinance in Tigray, Ethiopia using household panel data on 5 years and a dynamic panel probit model. The theoretical model takes two types of risk involved in joint-liability lending explicitly into account: risk of partner failure and the risk of losing future access to credit. Empirical results show that these risks are important in explaining borrowing decisions. Another finding is that the probability of repeat-borrowing is higher than the probability of new participation, with possible implications that perceived joint-liability threats deter participation and easing stringent punishments might help poor households’ access to credit.

Suggested Citation

  • Berhane Tesfay, G. & Gardebroek, Cornelis, 2008. "Joint-liability borrowing decisions under risk: Empirical evidence from rural microfinance in Ethiopia," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44202, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae08:44202
    DOI: 10.22004/ag.econ.44202
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    References listed on IDEAS

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    1. Craig P. Aubuchon & Rajdeep Sengupta, 2008. "The microfinance revolution: an overview," Review, Federal Reserve Bank of St. Louis, vol. 90(Jan), pages 9-30.
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    5. repec:pri:rpdevs:morduch_microfinance_poor is not listed on IDEAS
    6. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
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