Long-term relationship and Reciprocity in Credit Market Experiment: Implications for Microfinance
Microfinance sector is generally associated with high repayment rates. However it is not clear whether such success only results from the use of peer lending or is due to the existence of a long-term relationship between the borrower and her incumbent lender – that also strongly characterizes microcredit reality. Our paper contributes to the existing literature on microcredit market by experimentally examining to what extent long-term lending relationship enables to mitigate moral hazard associated with repayment and project selection in the absence of peer group. Subsequently, the aim of this paper is to investigate to what extent reciprocity and reputation can enhance credit market performance by mitigating moral hazard. The originality of our research lies in the fact that we introduce variability in socio-demographic characteristics by recruiting "real people", including not only students that are typically viewed as the standard subject pool but also bankers both from classical banking and from microcredit institutions. Consistent with previous studies, our findings reveal that the opportunity to engage bilateral long-term relationships strongly improves the market performance by mitigating the repayment problem (ex-post moral hazard) and thus enhancing cooperation between borrowers and lenders. This fact seems to highlight the prominence of reputation as a disciplining devise that conducts selfish borrowers to behave reciprocally. Notwithstanding, our results also seem to indicate that lenders take advantage of their long-term situation by increasing their rates. Credit cost is significantly higher under the partner treatments than under the stranger treatment. As a consequence, the borrowers may be incited to take more risk to reimburse their loan (ex-ante moral hazard). Improving the information disclosure negligibly enhances cooperation and thus market performance but alters the principals' lending behavioral patterns. Finally, we find that social bankers are more likely to makes fair credit offers to borrowers than classical bankers.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||May 2009|
|Publication status:||Published in Congrès AFFI 2009, May 2009, Brest, France. 36 p., 2009|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00391561|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00391561. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.