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Group Versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups

40 Pages Posted: 21 May 2009 Last revised: 7 Jan 2014

Xavier Giné

World Bank - Development Research Group (DECRG)

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: May 20, 2009

Abstract

Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.

Keywords: microfinance, group lending, group liability, joint liability, social capital, microenterprises, informal economies, access to finance

JEL Classification: C93, D71, D82, D91, G21, O12, O16, O17

Suggested Citation

Giné, Xavier and Karlan, Dean S., Group Versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups (May 20, 2009). Yale Economics Department Working Paper No. 61; Yale University Economic Growth Center Discussion Paper No. 970. Available at SSRN: https://ssrn.com/abstract=1407614

Xavier Gine

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: https://sites.google.com/site/decrgxaviergine/

Dean S. Karlan (Contact Author)

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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