Commercialization and the Decline of Joint Liability Microcredit
36 Pages Posted: 19 Sep 2015 Last revised: 1 Mar 2016
Date Written: February 29, 2016
Numerous authors point to a decline in joint liability microcredit, and rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization – an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data) – drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.
Keywords: microfinance; joint liability; commercialization; market structure
JEL Classification: G21, O12, O16
Suggested Citation: Suggested Citation