REPAYMENT AND EXCLUSION IN A MICROFINANCE EXPERIMENT

Jean-Marie Baland, Lata Gangadharan (), Pushkar Maitra and Rohini Somanathan
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Pushkar Maitra: Monash University
Rohini Somanathan: Department of Economics, Delhi School of Economics, Delhi, India

No 227, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: Microfinance groups often engage in a variety of collective activities not directly related to credit. Groups can sanction members who default on their loans by excluding them from these activities. Our experiment is designed to explore the effectiveness of such sanctions in improving repayment incentives. Groups of 10 members are provided with joint-liability loans for a specific investment project. If groups repay their loans, contributing members have the option of excluding other members and those that remain play a public goods game. By varying loan sizes across groups and allowing for heterogeneous gains from the public good within groups, we identify the role of incentives in repayment decisions. In line with theoretical predictions, groups with the largest repayment burdens have the highest default rates and within groups, individual decisions to contribute to loan repayment depend on gains from the public good game.

Keywords: Microfinance; Joint Liability; Social Exclusion; Public Good; Heterogeneous Pro- ductivity; Laboratory Experiments. (search for similar items in EconPapers)
JEL-codes: C9 G21 O12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-02
New Economics Papers: this item is included in nep-cwa, nep-exp and nep-mfd
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Related works:
Journal Article: Repayment and exclusion in a microfinance experiment (2017)
Working Paper: Repayment and Exclusion in a Microfinance Experiment (2013)
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