Repayment performance in group lending: Evidence from Jordan

Al-Azzam, Moh’d; Hill, R. Carter; Sarangi, Sudipta

doi:10.1016/j.jdeveco.2011.06.006

Cited by 74 publications

(72 citation statements)

References 20 publications

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“…According to him, when social ties are strong enough, social pressure does not have an impact because the utility that individuals derive from these relationships is more important than that they get out of money. However, these results are not consistent with the predictions of Al-Azzam, Hill, and Sarangi (2012) and Tesfaye, Tesfatsion, and Kiros (2014) who found that social sanction reduces opportunistic tendencies (ex-post moral hazard).…”

Section: Econometric Resultscontrasting

confidence: 81%

The determinants of group lending repayment performance: evidence from Togo

Noglo

Androuais

2015

Canadian Journal of Development Studies / Revue canadienne d'ét

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This paper aims to study the determinants of repayment performance in credit groups in Togo. Because of a lack of existing data, primary data were collected in 2008 through a sample of 36 credit groups gathering 258 people in rural and semi-urban areas of the Maritime region. The counting of repayment responses reveals a good performance (75% of the groups interviewed had repaid their loans). Using the logit model, the results show evidence that peer monitoring (visits between members), social capital (same sex, same ethnic group and same occupation) and informal sources of credit positively affect the repayment performance of groups.RÉSUMÉ Cet article analyse les déterminants de la performance de remboursement dans les groupes de crédit au Togo. Le manque de données officielles a conduit à collecter des données primaires sur un échantillon de 36 groupes de crédit représentant 258 personnes dans les milieux ruraux et semi-urbains de la région Maritime. Le comptage des réponses concernant les remboursements révèlent une bonne performance (75% des groupes avaient remboursé leur prêt au moment où nous les avons interviewés). Les résultats issues du model logit montrent que la surveillance par les pairs (visites entre membres des groupes), le capital social (entre personnes de même sexe, de la même ethnie et ayant des activités similaires) ainsi que les sources informelles de crédit ont un impact positif sur la performance de remboursement des groupes. IntroductionConventionally, the credit market behaves as a neoclassical market where there is a single interest rate bringing demand and supply into balance. However, in reality this equilibrium, considered as a benchmark, fails because the market does not succeed in achieving an optimal credit allocation (Petrick 2004). Thus, poor people in developing countries are excluded from bank financing for the following reasons: (1) asymmetric information leading to moral hazard (lack of effort to repay or diversion of credit to other purposes) and adverse selection (choice of borrowers who are too risky) (Stiglitz and Weiss 1981), (2) high transaction costs (costs for acquiring information, monitoring and enforcement and litigation costs in the event of default) (Besley 1994) and (3) a lack of assets that can be pledged as collateral (Pasha and Negese 2014). Microfinance is then seen as a solution that gives poor people in poor countries access to funds.

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Section: Econometric Resultscontrasting

confidence: 81%

The determinants of group lending repayment performance: evidence from Togo

Noglo

Androuais

2015

Canadian Journal of Development Studies / Revue canadienne d'ét

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“…These studies argue that social ties can embed trust, reciprocity and mutual support and that therefore they may be used as informal methods of support in case of need. The proxies for social ties used by these studies include the type of relationship (such as family, friends, or acquaintances; see, among others, Ahlin & Townsend, 2007;Al-Azzam et al, 2012;Griffin & Husted, 2015), duration of the relationship (Hermes et al, 2005;Wydick, 1999), meeting frequency (Feigenberg, Field, Pande, Rigol, & Sarkar, 2014;Feigenberg et al, 2013;Van Bastelaer & Leathers, 2006), geographic proximity (Karlan, 2007) These studies provide mixed results with respect to the relationship between social ties and repayment performance of group loans. While they add to our understanding of why and when social ties between group members may increase their repayment performance, they do not take into account the potential importance of ties with individuals outside the borrowing group (external ties).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

Postelnicu¹,

Hermes

Juárez

2018

The Journal of Development Studies

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We investigate how external social ties, that is, social ties with individuals outside the borrowing group, determine loan repayments of individual borrowers in joint liability group lending. We measure the resources in external ties in terms of the informal risk insurance arrangement they embed. The ties borrowers have with individuals outside the group and the informal risk insurance arrangement they represent, help to survive in general, and repay their loans in particular. The risk of losing these ties increases the willingness to repay loans, that is, these ties can be regarded as a form of collateral to stimulate loan repayment. The extent to which these external ties are effectively pledged as collateral depends on the extent to which social networks of group members are overlapping: the more borrowers' networks of external ties overlap (referred to as information channels), the higher the risk of losing the informal risk insurance arrangement in case of non-repayment. We use data from 802 mapped social networks of borrowers' internal and external ties from a microfinance institution in Mexico. We find that group borrowers with external ties, representing a strong informal risk insurance arrangement while at the same time being information channels, have lower repayment problems

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“…Their result showed that microfinance recipients who received formal religious education were more responsible in repaying their loan. Al-Azzam, Hill, and Sarangi (2012) found that "individuals who are more religious are less likely to make late payment". This is because Islam emphasises that all Muslims should repay debt.…”

Section: Religiositymentioning

confidence: 99%

Social Collateral Model for Islamic Microfinance

Kamaluddin¹,

Hadi²,

Alam³

et al. 2015

jda

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This study examines the social collateral model for Islamic microfinance in Malaysia. Using qualitative instruments on academics and officers of microfinance institutions as the sample study, this study identifies the components that should be included in the social collateral model for Islamic microfinance. Based on interviews and focus group discussions, this study found that similar to the conventional microfinance, the Islamic microfinance also include social capital, group pressure, entrepreneurship skills, and culture as the components of social collateral model. In addition, this study found that religiosity represents another important component of the social collateral model for Islamic microfinance.JEL Classifications: G21, I30, L31

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Repayment performance in group lending: Evidence from Jordan

Cited by 74 publications

References 20 publications

The determinants of group lending repayment performance: evidence from Togo

The determinants of group lending repayment performance: evidence from Togo

External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

Social Collateral Model for Islamic Microfinance

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