Repayment Performance in Microcredit Programs: Theory and Evidence

NFI Working Paper No. 2007-WP-11

19 Pages Posted: 13 May 2007

See all articles by Joel M. Guttman

Joel M. Guttman

Bar-Ilan University - Department of Economics

Date Written: March 2007

Abstract

This paper revisits the conventional wisdom on the determinants of the success of microcredit programs. The paper first develops a simple moral hazard model of borrowing in a group lending context, and then tests this model using data from a survey conducted in Bangladesh in 1991-92. One of the predictions of the moral hazard model, regarding the effect of group size on repayment performance, is rejected by the empirical evidence. The paper then develops an alternative approach, which is consistent with the observed effect of group size as well as the other empirical results.

Keywords: microfinance, microcredit, group lending

Suggested Citation

Guttman, Joel M., Repayment Performance in Microcredit Programs: Theory and Evidence (March 2007). NFI Working Paper No. 2007-WP-11 , Available at SSRN: https://ssrn.com/abstract=985890 or http://dx.doi.org/10.2139/ssrn.985890

Joel M. Guttman (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel

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