Group Lending with Heterogeneous Types

44 Pages Posted: 29 Jun 2013

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI)

Yanyan Liu

International Food Policy Research Institute (IFPRI)

Multiple version iconThere are 4 versions of this paper

Date Written: April 2013

Abstract

Group lending has been widely adopted in the past thirty years by many microfinance institutions as a means to mitigate information asymmetries when delivering credit to the poor. This paper proposes an empirical method to address the potential omitted-variable problem resulting from unobserved group types when modeling the repayment behavior of group members. We estimate the model using a rich dataset from a group-lending program in India. The estimation results support our model specification and show the advantages of relying on a type-varying method when analyzing the probability of default of group members. In particular, our model helps to better understand the factors driving repayment behavior, which may differ across group types, and shows a higher predictive power than standard single-agent choice models.

Keywords: group lending, heterogeneous types, repayment behavior

Suggested Citation

Gan, Li and Hernandez, Manuel A. and Liu, Yanyan, Group Lending with Heterogeneous Types (April 2013). IFPRI Discussion Paper No. 01268. Available at SSRN: https://ssrn.com/abstract=2286843 or http://dx.doi.org/10.2139/ssrn.2286843

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Yanyan Liu

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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