Commercialization and the Decline of Joint Liability Microcredit

36 Pages Posted: 19 Sep 2015 Last revised: 1 Mar 2016

Jonathan de Quidt

Stockholm University - Institute for International Economic Studies (IIES)

Thiemo René Fetzer

London School of Economics & Political Science (LSE)

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics

Date Written: February 29, 2016

Abstract

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

de Quidt, Jonathan and Fetzer, Thiemo René and Ghatak, Maitreesh, Commercialization and the Decline of Joint Liability Microcredit (February 29, 2016). Available at SSRN: https://ssrn.com/abstract=2662416 or http://dx.doi.org/10.2139/ssrn.2662416

Jonathan De Quidt (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

Thiemo René Fetzer

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/fetzert

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
44 20 7852 3568 (Phone)
44 20 7955 6951 (Fax)

HOME PAGE: http://sticerd.lse.ac.uk/dps/adds/ghatak/cv-lse-sept02.pdf

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