Social Connections and Group Banking
40 Pages Posted: 20 May 2008
There are 2 versions of this paper
Date Written: March 2007
Abstract
Lending to the poor is expensive due to high screening, monitoring, and enforcement costs. Group lending advocates believe lenders overcome this by harnessing social connections. Using data from FINCA-Peru, I exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint-liability loans. Individuals with stronger social connections to their fellow group members (i.e., either living closer or being of a similar culture) have higher repayment and higher savings. Furthermore, I observe direct evidence that relationships deteriorate after default, and that through successful monitoring, individuals know who to punish and who not to punish after default.
Keywords: Group lending, informal savings, microfinance, social capital
JEL Classification: O12, O16, O17, Z13
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Using Experimental Economics to Measure Social Capital and Predict Financial Decisions
-
Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment
By Dean S. Karlan and Jonathan Zinman
-
Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment
By Dean S. Karlan and Jonathan Zinman