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Group Size and Social Ties in Microfinance Institutions

  • Klaus Abbink
  • Bernd Irlenbusch

Microfinance programmes provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. In an experiment we investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide, whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects. We observe high repayments rates, which are robust across treatment. Group lending outperforms individual lending. Self-selected groups show a high but less stable willingness to contribute

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 404.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:404
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