Grameen Bank Lending : Does Group Liability Matter?

Competing theories increasingly support the positive role of social capital in small loan default costs of group lending; at the same time, potential group collusion may increase loan delinquencies. Findings from the available literature are mixed on the role of the various attributes of group lending. But past studies suffer from estimation bias due to the unobserved sorting behavior of group members and their other attributes. This paper attempts to resolve that estimation bias by utilizing longitudinal data from 297 Grameen Bank groups since their inceptions. A dynamic lagged dependent model with correction for time-varying heterogeneity of group and individual behavior is applied to estimate the effect of group liability in the Grameen Bank. The results suggest that group liability matters in both loan disbursement and repayment, with women less of a credit risk than men and women's groups more homogeneous than men's. Finally, the benefits of social capital outweigh the costs of group collusion, especially for women's groups, thereby reducing overall default rates. The risk-pooling behavior of diverse men's groups increases men's repayment behavior. Overall, group lending as practiced by Grameen Bank appears to increase repayment rates.

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Bibliographic Details
Main Author: Khandker, Shahidur R.
Language:English
en_US
Published: World Bank, Washington, DC 2012-09
Subjects:ACCESS TO CREDIT, ADVERSE SELECTION, AGRICULTURE, AMOUNT DUE, AMOUNT OF LOAN, BANK BRANCH, BANK LENDING, BANK POLICY, BOND, BORROWER, BORROWING, BRANCHES, COLLATERAL, COLLUSION, CONSUMER CREDIT, CONTRACTUAL OBLIGATIONS, CREDIT AGREEMENT, CREDIT CONSTRAINT, CREDIT CONTRACTS, CREDIT COOPERATIVE, CREDIT GROUPS, CREDIT MARKET, CREDIT PROGRAMS, CREDIT RISK, CREDIT RISKS, DEFAULT COST, DEFAULT COSTS, DEFAULT RATES, DEFAULTS, DEMAND FOR CREDIT, DEPENDENT, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISBURSEMENT, DISBURSEMENTS, DISECONOMIES OF SCALE, ECONOMETRICS, ECONOMIC CONDITIONS, ECONOMIC DEVELOPMENT, ECONOMIC RESOURCES, EMPLOYMENT, ENDOGENOUS VARIABLES, EQUATIONS, EXPERIMENTAL ECONOMICS, EXTERNALITY, FINANCIAL INSTITUTIONS, GROUP BORROWERS, GROUP CREDIT, GROUP LENDING, GROUP LENDING PROGRAMS, GROUP LOAN, GROUP REPAYMENT, GROUP-LENDING, HOUSEHOLD INCOME, HOUSING, INDEBTED, INDIVIDUAL DEFAULT, INDIVIDUAL LIABILITY, INDIVIDUAL LOAN, INFORMATION ASYMMETRIES, INSTITUTIONAL CREDIT, INSTRUMENT, INSURANCE, INTERNATIONAL BANK, JOINT LIABILITY, LAND ASSETS, LENDER, LENDERS, LEVERAGE, LIABILITY, LOAN AMOUNT, LOAN AMOUNTS, LOAN CONTRACTS, LOAN DEFAULT, LOAN DEFAULT RATE, LOAN DEFAULT RATES, LOAN DEFAULTS, LOAN PERFORMANCE, LOAN RECOVERIES, LOAN RECOVERY, LOAN REPAYMENT, LOAN REPAYMENT RATE, LOAN REPAYMENT RATES, LOAN REPAYMENTS, LOAN SIZE, LOANS TO GROUPS, MARKET FAILURES, MICROCREDIT, MICROCREDIT PROGRAM, MICROFINANCE, MICROFINANCE INSTITUTIONS, MICROFINANCE PROGRAMS, MORAL HAZARD, PEER PRESSURE, PENALTIES, PROBABILITY OF DEFAULT, PUBLIC ADMINISTRATION, RECOVERY RATE, RECOVERY RATES, REPAYMENT, REPAYMENT BEHAVIOR, REPAYMENT HISTORY, REPAYMENT INCENTIVES, REPAYMENT PERFORMANCE, REPAYMENT RATE, REPAYMENT RATES, RISK POOLING, SMALL LOAN, SOCIAL CAPITAL, SOCIAL COLLATERAL, TRANSACTION, TRANSACTION COST,
Online Access:http://documents.worldbank.org/curated/en/2012/09/16753280/grameen-bank-lending-group-liability-matter
https://hdl.handle.net/10986/12058
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