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Determinants of repayment performance in credit groups

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  • Zeller, Manfred

Abstract

Group lending has received much attention in recent years because of its perceived potential in providing financial services to poor households that lack traditional collateral. The analysis in this paper focuses on the effects of program design, community and group characteristics on the repayment performance of groups, using a data set on groups from six different lending programs in Madagascar. The results show that socially cohesive groups pool risks by diversifying the members' asset portfolio so that their repayment performance is improved even in communities with high-risk exposure.

Suggested Citation

  • Zeller, Manfred, 1996. "Determinants of repayment performance in credit groups," FCND discussion papers 13, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:fcnddp:13
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    File URL: http://www.ifpri.org/sites/default/files/publications/dp13.pdf
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    References listed on IDEAS

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    1. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
    2. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    3. Huppi, Monika & Feder, Gershon, 1990. "The Role of Groups and Credit Cooperatives in Rural Lending," World Bank Research Observer, World Bank Group, vol. 5(2), pages 187-204, July.
    4. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
    5. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, vol. 4(3), pages 251-269, September.
    6. Bardhan, Pranab, 1993. "Analytics of the institutions of informal cooperation in rural development," World Development, Elsevier, vol. 21(4), pages 633-639, April.
    7. Bhatt, V. V., 1988. "On financial innovations and credit market evolution," World Development, Elsevier, vol. 16(2), pages 281-292, February.
    8. Robert M. Townsend, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1011-1046.
    9. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
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    Citations

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    Cited by:

    1. Rafael Gomez & Eric Santor, 2003. "Do Peer Group Members Outperform Individual Borrowers? A Test of Peer Group Lending Using Canadian Micro-Credit Data," Staff Working Papers 03-33, Bank of Canada.
    2. Grootaert, Christiaan, 1999. "Social capital, houshold welfare, and poverty in Indonesia," Policy Research Working Paper Series 2148, The World Bank.
    3. Feroze, S.M. & Chauhan, A.K. & Malhotra, Ravinder & Kadian, K.S., 2011. "Factors Influencing Group Repayment Performance in Haryana: Application of Tobit Model," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 24(1).
    4. Murendo, Conrad & Keil, Alwin & Zeller, Manfred, 2010. "Drought impacts and related risk management by smallholder farmers in developing countries: evidence from Awash River Basin, Ethiopia," Research in Development Economics and Policy (Discussion Paper Series) 114750, Universitaet Hohenheim, Department of Agricultural Economics and Social Sciences in the Tropics and Subtropics.
    5. Li, Shanjun & Liu, Yanyan & Deininger, Klaus W., 2009. "How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49497, Agricultural and Applied Economics Association.
    6. Mark Schreiner, 2001. "A Scoring Model of the Risk of Costly Arrears at a Microfinance Lender in Bolivia," Development and Comp Systems 0109005, EconWPA.
    7. A. Lasagni & E. Lollo, 2011. "Participation in Rotating Savings and Credit Associations in Indonesia: New Empirical Evidence on Social Capital," Economics Department Working Papers 2011-EP05, Department of Economics, Parma University (Italy).

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