Group Lending with Heterogeneous Types

19 Pages Posted: 22 Feb 2018

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 2018

Abstract

This paper proposes and implements a mixture structure to model repayment behavior in group lending with unobserved group heterogeneity. We discuss the model properties and identification and estimate the model using a rich dataset from a group lending program in India. The estimation results support the existence of two different group types: “responsible” and “irresponsible” groups. We find that the effects of the factors driving repayment behavior differ across types. The model also shows a higher predictive performance than standard probabilistic models, particularly in the identification of potential defaulters. We provide evidence supporting the robustness of our estimations.

JEL Classification: O16, C35

Suggested Citation

Gan, Li and Hernandez, Manuel A. and Liu, Yanyan, Group Lending with Heterogeneous Types (April 2018). Economic Inquiry, Vol. 56, Issue 2, pp. 895-913, 2018. Available at SSRN: https://ssrn.com/abstract=3127907 or http://dx.doi.org/10.1111/ecin.12541

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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