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The Effects of Monitoring Activities on Loan Defaults in Group-Based Lending Program: Evidence from Vietnam

Author

Listed:
  • Tran Ba-Tri

    (School of Economics, Can Tho University, Can Tho City 94115, Vietnam)

  • Loc Dong Truong

    (School of Economics, Can Tho University, Can Tho City 94115, Vietnam)

  • H. Swint Friday

    (RELLIS Campus, Texas A&M University, Bryan, TX 77807, USA)

  • Tien Phat Pham

    (School of Economics, Can Tho University, Can Tho City 94115, Vietnam)

Abstract

The aim of this study is to investigate the impact of delegated monitoring by a group leader and peer monitoring by group members on loan defaults in a group-based lending program in Vietnam. The data used in the study were collected from a questionnaire survey of 675 participants involved in a group-based lending program conducted from August to October 2022 in the Mekong River Delta, Vietnam. This group-based lending program employs a unique monitoring system that involves hiring the group leader to supervise the group and encouraging group members to monitor each other. The empirical findings derived from the Probit model indicated that delegated monitoring significantly reduces loan defaults, but there was no evidence supporting the effectiveness of peer monitoring within the group. Additionally, under the delegated monitoring scheme, commissions and group size plays an important role in decreasing loan defaults. The implication of the findings is that the Vietnam Bank for Social Policies (VBSP) could maintain large group sizes to provide incentives for group leaders through commissions to enhance repayment rates.

Suggested Citation

  • Tran Ba-Tri & Loc Dong Truong & H. Swint Friday & Tien Phat Pham, 2024. "The Effects of Monitoring Activities on Loan Defaults in Group-Based Lending Program: Evidence from Vietnam," JRFM, MDPI, vol. 17(8), pages 1-16, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:357-:d:1455998
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    References listed on IDEAS

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    1. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, April.
    2. Li Gan & Manuel A. Hernandez & Yanyan Liu, 2018. "Group Lending With Heterogeneous Types," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 895-913, April.
    3. Mark Wenner, 1995. "Group credit: A means to improve information transfer and loan repayment performance," Journal of Development Studies, Taylor & Francis Journals, vol. 32(2), pages 263-281.
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