Group Versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups
40 Pages Posted: 21 May 2009 Last revised: 7 Jan 2014
Date Written: May 20, 2009
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: Suggested Citation