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Risk-Matching in Credit Groups: Evidence from Guatemala

Author

Listed:
  • Seth Carpenter

    (Federal Reserve Board)

  • Loic Sadoulet

    (Universite Libre de Bruxelles)

Abstract

With widely publicized high repayment rates, microfinance is gaining a great deal of attention. Using data from Guatemala, this paper examines risk matching in credit groups. The literature often assumes that joint-liability will lead groups to form homogeneously in risk, and that risk heterogeneity emerges only as a second-best. We find they do not, even accounting for matching frictions. Data on mutual-help within groups provides evidence consistent with the hypothesis that group lending provides insurance among borrowers. This intra-group insurance suggests that current credit contracts can be improved by incorporating insurance provisions. We discuss one possibility of such a contract briefly.

Suggested Citation

  • Seth Carpenter & Loic Sadoulet, 2000. "Risk-Matching in Credit Groups: Evidence from Guatemala," Econometric Society World Congress 2000 Contributed Papers 1310, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1310
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    References listed on IDEAS

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    Cited by:

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    2. Altınok, Ahmet, 2023. "Group lending, sorting, and risk sharing," Games and Economic Behavior, Elsevier, vol. 140(C), pages 456-480.

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