IDEAS home Printed from https://ideas.repec.org/p/feb/artefa/00036.html
   My bibliography  Save this paper

The effect of social capital on group loan repayment: Evidence from artefactual field experiments

Author

Listed:
  • Alessandra Cassar
  • Lucas Crowley
  • Bruce Wydick

Abstract

An important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending. This research presents evidence from field experiments in South Africa and Armenia, in which subjects participate in trust games and a microfinance game. We present moderately strong evidence that personal trust between group members and peer homogeneity are more important to group loan repayment than general societal trust or mere acquaintanceship between members. We also find some evidence of reciprocity in groups: those who have been helped by other members are more likely to contribute themselves.

Suggested Citation

  • Alessandra Cassar & Lucas Crowley & Bruce Wydick, 2005. "The effect of social capital on group loan repayment: Evidence from artefactual field experiments," Artefactual Field Experiments 00036, The Field Experiments Website.
    • Handle: RePEc:feb:artefa:00036
    as

    Download full text from publisher

    File URL: http://s3.amazonaws.com/fieldexperiments-papers2/papers/00036.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. de Aghion, Beatriz Armendariz & Gollier, Christian, 2000. "Peer Group Formation in an Adverse Selection Model," Economic Journal, Royal Economic Society, vol. 110(465), pages 632-643, July.
    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. Klaus Abbink & Bernd Irlenbusch & Elke Renner, 2006. "Group Size and Social Ties in Microfinance Institutions," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 614-628, October.
    4. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
    5. 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.
    6. 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.
    7. 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, President and Fellows of Harvard College, vol. 109(2), pages 491-515.
    8. Bruce Wydick, 2001. "Group Lending under Dynamic Incentives as a Borrower Discipline Device," Review of Development Economics, Wiley Blackwell, vol. 5(3), pages 406-420, October.
    9. repec:bla:rdevec:v:5:y:2001:i:3:p:406-20 is not listed on IDEAS
    10. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 495-526.
    11. repec:pri:rpdevs:gamespaper.pdf is not listed on IDEAS
    12. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," The World Bank Economic Review, World Bank, vol. 4(3), pages 351-366, September.
    13. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    14. Mark Wenner, 1995. "Group credit: A means to improve information transfer and loan repayment performance," Journal of Development Studies, Taylor & Francis Journals, vol. 32(2), pages 263-281.
    15. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-475, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hisaki Kono, 2006. "Is group lending a good enforcement scheme for achieving high repayment rates? Evidence from field experiments in vietnam," Artefactual Field Experiments 00075, The Field Experiments Website.
    2. Xavier Giné & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2010. "Microfinance Games," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 60-95, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. DeanS. Karlan, 2007. "Social connections and group banking," Economic Journal, Royal Economic Society, vol. 117(517), pages 52-84, February.
    2. Kugler, Maurice & Oppes, Rossella, 2005. "Collateral and risk sharing in group lending: evidence from an urban microcredit program," Discussion Paper Series In Economics And Econometrics 504, Economics Division, School of Social Sciences, University of Southampton.
    3. Hameem Raees Chowdhury, 2016. "Joint-Liability in Microcredit: Evidence from Bangladesh," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(1), pages 105-129, March.
    4. Selay Sahan & Euan Phimister, 2023. "Repayment performance of joint‐liability microcredits: Metropolitan evidence on social capital and group names," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 287-311, April.
    5. Kugler, Maurice & Oppes, Rossella, 2005. "Collateral and risk sharing in group lending: evidence from an urban microcredit program," Discussion Paper Series In Economics And Econometrics 0504, Economics Division, School of Social Sciences, University of Southampton.
    6. 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.
    7. Chowdhury, Shyamal & Chowdhury, Prabal Roy & Sengupta, Kunal, 2014. "Sequential lending with dynamic joint liability in micro-finance," Journal of Development Economics, Elsevier, vol. 111(C), pages 167-180.
    8. Dezső, Linda & Loewenstein, George, 2012. "Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 996-1011.
    9. Al-Azzam, Moh'd & Carter Hill, R. & Sarangi, Sudipta, 2012. "Repayment performance in group lending: Evidence from Jordan," Journal of Development Economics, Elsevier, vol. 97(2), pages 404-414.
    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.
    11. Shyamal Chowdhury & Prabal Roy Chowdhury & Kunal Sengupta, 2014. "Sequential lending with dynamic joint liability in micro-finance," Discussion Papers 14-07, Indian Statistical Institute, Delhi.
    12. Soyolmaa Batbekh & Keith Blackburn, 2008. "On the Macroeconomics of Microfinance," Centre for Growth and Business Cycle Research Discussion Paper Series 106, Economics, The University of Manchester.
    13. Thilo Klein, 2015. "Does Anti-Diversification Pay? A One-Sided Matching Model of Microcredit," Cambridge Working Papers in Economics 1521, Faculty of Economics, University of Cambridge.
    14. Hisaki Kono, 2006. "Is group lending a good enforcement scheme for achieving high repayment rates? Evidence from field experiments in vietnam," Artefactual Field Experiments 00075, The Field Experiments Website.
    15. Xavier Giné & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2010. "Microfinance Games," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 60-95, July.
    16. Li Gan & Manuel A. Hernandez & Yanyan Liu, 2018. "Group Lending With Heterogeneous Types," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 895-913, April.
    17. Czura, Kristina, 2015. "Pay, peek, punish? Repayment, information acquisition and punishment in a microcredit lab-in-the-field experiment," Journal of Development Economics, Elsevier, vol. 117(C), pages 119-133.
    18. Moh'd Al-Azzam & Maria Heracleous & Sudipta Sarangi, 2013. "Does the Group Leader Affect Repayment Performance Differently?," Southern Economic Journal, John Wiley & Sons, vol. 80(2), pages 502-522, October.
    19. Al-Azzam, Moh’d & Parmeter, Christopher F. & Sarangi, Sudipta, 2020. "On the complex relationship between different aspects of social capital and group loan repayment," Economic Modelling, Elsevier, vol. 90(C), pages 92-107.
    20. Khandker, Shahidur R., 2012. "Grameen bank lending : does group liability matter ?," Policy Research Working Paper Series 6204, The World Bank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:feb:artefa:00036. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Francesca Pagnotta (email available below). General contact details of provider: http://www.fieldexperiments.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.