Group Size and Social Ties in Microfinance Institutions

Posted: 29 Feb 2008

See all articles by Klaus Abbink

Klaus Abbink

University of Nottingham - School of Economics

Bernd Irlenbusch

London School of Economics & Political Science - Department of Management; IZA Institute of Labor Economics

Elke Renner

University of Nottingham

Date Written: October 2006

Abstract

Micro-finance programs provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. We experimentally investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects and observe robust high repayment rates. Group lending outperforms individual lending. Self-selected groups show high but less stable contributions.

JEL Classification: C90. H41. I38, O16, Z13

Suggested Citation

Abbink, Klaus and Irlenbusch, Bernd and Renner, Elke, Group Size and Social Ties in Microfinance Institutions (October 2006). Economic Inquiry, Vol. 44, Issue 4, pp. 614-628, 2006, Available at SSRN: https://ssrn.com/abstract=1095969 or http://dx.doi.org/10.1093/ei/cbl001

Klaus Abbink (Contact Author)

University of Nottingham - School of Economics ( email )

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Bernd Irlenbusch

London School of Economics & Political Science - Department of Management ( email )

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IZA Institute of Labor Economics

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Elke Renner

University of Nottingham ( email )

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Nottingham, NG8 1BB
United Kingdom

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