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Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups

  • Xavier Giné

    ()

    (World Bank)

  • Dean Karlan

    ()

    (Economic Growth Center, Yale University)

Registered author(s):

    Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.

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    File URL: http://www.econ.yale.edu/growth_pdf/cdp970.pdf
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    Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 970.

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    Length: 36 pages
    Date of creation: Jan 2009
    Date of revision:
    Handle: RePEc:egc:wpaper:970
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