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Risk behaviour and group formation in microcredit groups in Eritrea

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  • Robert Lensink
  • Habteab T. Mehrteab

Abstract

We conducted a survey in 2001 among members and group leaders of borrowers who accessed loans from two microcredit programs in Eritrea. Using the results from this survey, this paper aims to provide new insights into the empirical relevance of the homogeneous matching hypothesis for microcredit groups in Eritrea. Since the methodology to test for homogeneous matching needs estimating risk behaviour, the paper also provides new evidence on risk behaviour of members of microcredit groups in Eritrea. Our main results strongly indicate that groups are formed heterogeneously. Most importantly, we do not find support for the matching frictions hypothesis, in the sense that even if we control for matching frictions, credit groups in Eritrea do not seem to consist of borrowers of the similar risk type.
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Suggested Citation

  • Robert Lensink & Habteab T. Mehrteab, 2007. "Risk behaviour and group formation in microcredit groups in Eritrea," ULB Institutional Repository 2013/14279, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/14279
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    1. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-631, July.
    2. Laffont, Jean-Jacques, 2003. "Collusion and group lending with adverse selection," Journal of Development Economics, Elsevier, vol. 70(2), pages 329-348, April.
    3. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," The World Bank Economic Review, World Bank, vol. 4(3), pages 351-366, September.
    4. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    5. Laffont, Jean-Jacques & N'Guessan, Tchetche, 2000. "Group lending with adverse selection," European Economic Review, Elsevier, vol. 44(4-6), pages 773-784, May.
    6. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
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    Cited by:

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    2. Dyuti Banerjee & Anupama Sethi, 2008. "Intra-Group Transfers And Group Formation," Monash Economics Working Papers 24/08, Monash University, Department of Economics.
    3. Kugler, Maurice & Oppes, Rossella, 2005. "Collateral and risk sharing in group lending: evidence from an urban microcredit program," Discussion Paper Series In Economics And Econometrics 0504, Economics Division, School of Social Sciences, University of Southampton.
    4. repec:ebl:ecbull:v:15:y:2005:i:9:p:1-8 is not listed on IDEAS
    5. Kibrom A. ABAY & Bethelhem KORU & Gashaw Tadesse ABATE & Guush BERHANE, 2019. "How Should Rural Financial Cooperatives Be Best Organized? Evidence From Ethiopia," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 90(1), pages 187-215, March.
    6. Kugler, Maurice & Oppes, Rossella, 2005. "Collateral and risk sharing in group lending: evidence from an urban microcredit program," Discussion Paper Series In Economics And Econometrics 504, Economics Division, School of Social Sciences, University of Southampton.
    7. Yan Liu & Guang???Zhen Sun, 2008. "Competition And Access Regulation In The Telecommunications Industry With Multiple Networks," Monash Economics Working Papers 25/08, Monash University, Department of Economics.

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