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Group Size and Social Ties in Microfinance Institutions

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  • Klaus Abbink
  • Bernd Irlenbusch

Abstract

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

Suggested Citation

  • Klaus Abbink & Bernd Irlenbusch, 2004. "Group Size and Social Ties in Microfinance Institutions," Econometric Society 2004 Far Eastern Meetings 404, Econometric Society.
  • Handle: RePEc:ecm:feam04:404
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    Keywords

    Microcredits; group lending; public goods; laboratory experiments; development economics;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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