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The Hazard Of Client Exit In Microfinance

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  • Pagura, Maria E.

Abstract

In this study it is shown that group lending is not always effective in dealing with the information and enforcement issues associated with financial intermediation, In particular, by transferring all screening responsibilities onto borrowers, efficiency is lost in the intermediation process, creating poor quality matches between borrowers and loan contracts. This results in high client exit. This phenomenon is especially exaggerated in environments in which group lending based on joint liability is a new lending technology in the financial market. Drawing upon theories of job matching and technology adoption, client exit is described in a choice theoretic framework. Basically, when faced with a decision of staying or exiting, a client compares her expected benefits of borrowing to her expected costs. She exits when the costs of borrowing are greater than the benefits of borrowing. Interesting exit/stay outcomes arise when joint liability is modeled into the choice. Using a hazard model, we show that different borrower/firms exhibit differences in duration dependence.

Suggested Citation

  • Pagura, Maria E., 2002. "The Hazard Of Client Exit In Microfinance," 2002 Annual meeting, July 28-31, Long Beach, CA 19698, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea02:19698
    DOI: 10.22004/ag.econ.19698
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    References listed on IDEAS

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