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Repaying Microcredit Loans: A Natural Experiment on Liability Structure

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  • Mahreen Mahmud

Abstract

This paper utilises a natural experiment – the shift from individual to joint lending by a microfinance organisation in Pakistan – to show significant improvement in borrower discipline under joint liability loans. I find that a possible mechanism for this impact is the degree of pre-existing social connection between the group members. For the mechanism analysis, I use the exogenous variation in the number of months borrowers had till the expiry of their individual liability loans at the time of the announcement of the shift to joint leading as an instrument for the degree of social connection of the group.

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  • Mahreen Mahmud, 2020. "Repaying Microcredit Loans: A Natural Experiment on Liability Structure," Journal of Development Studies, Taylor & Francis Journals, vol. 56(6), pages 1161-1176, June.
    • Handle: RePEc:taf:jdevst:v:56:y:2020:i:6:p:1161-1176
    DOI: 10.1080/00220388.2019.1632432
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    1. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2018. "Commercialization and the decline of joint liability microcredit," Journal of Development Economics, Elsevier, vol. 134(C), pages 209-225.
    2. Nicholas Sabin, 2023. "Choosing partners: selection priorities of joint liability group leaders," Empirical Economics, Springer, vol. 64(1), pages 323-348, January.
    3. Mahmud, Mahreen & Wahhaj, Zaki, 2019. "Charitable giving or signalling? Voluntary contributions by microcredit borrowers in Pakistan," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 394-415.
    4. Tran Ba-Tri & Loc Dong Truong & Pham Phat Tien, 2024. "Impact of Monitoring Activities and Social Ties on the Repayment Problems of group-Based Lending-Evidence from Vietnam," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 478-487, August.

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    More about this item

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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