Social Connections and Group Banking

Dean Karlan

No 28522, Center Discussion Papers from Yale University, Economic Growth Center

Abstract: Lending to the poor is expensive due to high screening, monitoring, and enforcement costs. Group lending advocates believe lenders overcome this by harnessing social connections. Using data from FINCA-Peru, I exploit a quasi-random group formation process to find evidence of peers successfully monitoring and enforcing joint-liability loans. Individuals with stronger social connections to their fellow group members (i.e., either living closer or being of a similar culture) have higher repayment and higher savings. Furthermore, I observe direct evidence that relationships deteriorate after default, and that through successful monitoring, individuals know who to punish and who not to punish after default.

Keywords: Institutional; and; Behavioral; Economics (search for similar items in EconPapers)
Pages: 40
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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https://ageconsearch.umn.edu/record/28522/files/dp050913.pdf (application/pdf)

Related works:
Journal Article: Social connections and group banking (2007)
Working Paper: Social Connections and Group Banking (2007)
Working Paper: Social Connections and Group Banking (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:yaleeg:28522

DOI: 10.22004/ag.econ.28522

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