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Defining Social Collateral in Microfinance Group Lending

In: Microfinance Institutions

Author

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  • Luminita Postelnicu
  • Niels Hermes
  • Ariane Szafarz

Abstract

Microfinance institutions (MFIs) grant loans backed by social collateral to poor entrepreneurs whose incomes originate mostly from informal economic activities. As a consequence, MFIs are often committed to rely on soft information to assess borrowers’ credit-worthiness. Group lending with joint liability is seen as an effective instrument to circumvent information asymmetries because it incentivizes group members to use their social ties to screen, monitor, and enforce loan repayment on their peers. The social ties embed social capital and facilitate the collective actions of group members, allowing them to coordinate their repayment decisions and cooperate for their mutual benefit.

Suggested Citation

  • Luminita Postelnicu & Niels Hermes & Ariane Szafarz, 2014. "Defining Social Collateral in Microfinance Group Lending," Palgrave Studies in Impact Finance, in: Roy Mersland & R. Øystein Strøm (ed.), Microfinance Institutions, chapter 10, pages 187-207, Palgrave Macmillan.
    • Handle: RePEc:pal:psifcp:978-1-137-39966-3_10
    DOI: 10.1057/9781137399663_10
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    Cited by:

    1. Luminita Postelnicu & Niels Hermes & Roselia Servin Juarez, 2015. "Social Capital and the Repayment of Microfinance Group Lending. A Case Study of Pro Mujer Mexico," Working Papers CEB 15-023, ULB -- Universite Libre de Bruxelles.
    2. Renaud Bourlès & Anastasia Cozarenco & Dominique Henriet & Xavier Joutard, 2022. "Business Training with a Better-Informed Lender: Theory and Evidence from Microcredit in France," Annals of Economics and Statistics, GENES, issue 148, pages 65-108.
    3. Renaud Bourlès & Anastasia Cozarenco & Dominique Henriet & Xavier Joutard, 2015. "Business Training Allocation and Credit Scoring: Theory and Evidence from Microcredit in France," Working Papers CEB 15-030, ULB -- Universite Libre de Bruxelles.
    4. He, Yunwen, 2021. "Using your regular contacts as collateral: The information value of call logs," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    5. Simon Cornée & Anastasia Cozarenco & Ariane Szafarz, 2023. "The Changing Role of Banks in the Financial System: Social Versus Conventional Banks," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Chrysovalantis Gaganis & Fotios Pasiouras & Menelaos Tasiou & Constantin Zopounidis (ed.), Sustainable Finance and ESG, pages 1-25, Palgrave Macmillan.
    6. Md Aslam Mia & V. G. R. Chandran, 2016. "Measuring Financial and Social Outreach Productivity of Microfinance Institutions in Bangladesh," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 505-527, June.
    7. Christian Kurniawan & Xiyu Deng & Adhiraj Chakraborty & Assane Gueye & Niangjun Chen & Yorie Nakahira, 2022. "A Learning and Control Perspective for Microfinance," Papers 2207.12631, arXiv.org, revised Dec 2022.
    8. Renaud Bourlès & Anastasia Cozarenco & Dominique Henriet & Xavier Joutard, 2015. "Business Training Allocation and Credit Scoring: Theory and Evidence from Microcredit in France," AMSE Working Papers 1526, Aix-Marseille School of Economics, France.
    9. Chmelíková, Gabriela & Krauss, Annette & Dvouletý, Ondřej, 2019. "Performance of microfinance institutions in Europe—Does social capital matter?," Socio-Economic Planning Sciences, Elsevier, vol. 68(C).
    10. Thereza Balliester Reis, 2021. "What is financial inclusion? A critical review," Working Papers 246, Department of Economics, SOAS University of London, UK.
    11. Namayengo., Faith & van Ophem, Johan A.C. & Antonides, Gerrit, 2016. "Women And Microcredit In Rural Agrarian Households Of Uganda: Match Or Mismatch Between Lender And Borrower?," APSTRACT: Applied Studies in Agribusiness and Commerce, AGRIMBA, vol. 10(2-3), pages 1-12, October.
    12. Godfroid, Cécile & Otiti, Naome & Mersland, Roy, 2022. "Employee tenure and staff performance: The case of a social enterprise," Journal of Business Research, Elsevier, vol. 139(C), pages 457-467.
    13. Salvador Cruz Rambaud & Joaquín López Pascual & Roberto Moro-Visconti & Emilio M. Santandreu, 2022. "Should gender be a determinant factor for granting crowdfunded microloans?," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-13, December.

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    More about this item

    Keywords

    Social Capital; Moral Hazard; Information Channel; Soft Information; Social Sanction;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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