Joint-Liability in Microcredit: Evidence from Bangladesh

Hameem Raees Chowdhury

Atlantic Economic Journal, 2016, vol. 44, issue 1, No 7, 105-129

Abstract: Abstract The joint-liability lending model in microcredit predicts social ties between groups of borrowers to incentivise repayment. However, it also promotes free riding behaviour. Repeated experimental games conducted in Bangladesh are used to empirically analyse key theoretical hypotheses predicted under joint-liability (repeated experimental games are conducted by the author on the field in Manikganj, Dhaka, Bangladesh in December 2014); treated groups of microcredit borrowers are compared to control groups of non-microcredit borrowers alongside questionnaire findings. Treated individuals forego short-run gains from non-repayment and benefit from higher long-run gains from progressing on to further rounds. The paper also finds that treated individuals are significantly less likely to free ride and more likely to shoulder for their partner compared to control individuals. Optimal individual and group characteristics to maximise repayment under joint-liability are then identified.

Keywords: Microcredit; Joint-liability; Social ties; Free riding; Repeated games; O10; C90; D70 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s11293-016-9490-x

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