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Determinants of repayment performance in Indian micro-credit groups

Author

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  • Deininger, Klaus
  • Liu, Yanyan

Abstract

Despite their potential importance and ease of modification, impacts of monitoring and loan recovery arrangements on micro-credit groups'repayment performance have rarely been studied. Data on 3,350 expired group loans in 300 Indian villages highlight that regular monitoring and audits, high repayment frequency, consumption smoothing support through rice credit, and having group savings deposited with the lender all significantly increase repayment rates. Estimated magnitudes of their effects vastly exceed those of members'socio-economic characteristics. Significantly lower repayment on loans originating in externally provided grant resources suggests that stringent monitoring will be essential for these to have a sustainable impact.

Suggested Citation

  • Deininger, Klaus & Liu, Yanyan, 2009. "Determinants of repayment performance in Indian micro-credit groups," Policy Research Working Paper Series 4885, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4885
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    References listed on IDEAS

    as
    1. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    2. Zeller, Manfred, 1998. "Determinants of Repayment Performance in Credit Groups: The Role of Program Design, Intragroup Risk Pooling, and Social Cohesion," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 599-620, April.
    3. Luoto, Jill & McIntosh, Craig & Wydick, Bruce, 2007. "Credit Information Systems in Less Developed Countries: A Test with Microfinance in Guatemala," Economic Development and Cultural Change, University of Chicago Press, vol. 55(2), pages 313-334, January.
    4. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
    5. Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
    6. Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, vol. 117(517), pages 11-51, February.
    7. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, Elsevier.
    8. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
    9. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    10. Joel M. Guttman, 2006. "Repayment Performance in Group Lending Programs: A Survey," NFI Working Papers 2006-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
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    Cited by:

    1. Sofia Pereira & Paulo Mourao, 2012. "Why does the microcredit borrowing rate differ across countries? A cross-country study," International Journal of Social Economics, Emerald Group Publishing, vol. 39(8), pages 536-550, June.

    More about this item

    Keywords

    Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Strategic Debt Management;

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