Selection of Borrowing Partners in Joint-Liability-Based Microcredit: Evidence from Framed Field Experiments in Bangladesh

Sugato Chakravarty () and Abu Shahriar ()

No 1017, Working Papers from Purdue University, Department of Consumer Sciences

Abstract: We examine partner selection decision in the formation of borrowing group in joint-liability-based microcredit. We do so within the context of framed field experiments conducted in Bangladesh. We find that when joint-liability payments are made using money from the borrower’s mandatory savings account, risky borrowers display a willingness to offer side payments that are sufficiently large o attract safe borrowers to form groups. Many important theoretical results in microcredit are based solely on the assumption of homogeneous risk-matched borrowing groups. Therefore, we argue that it is important to allow for the likelihood of heterogeneous risk-matched groups in theoretical research.

Keywords: microfinance, joint liability, group borrowing (search for similar items in EconPapers)
Pages: 60 pages
Date: 2013-12
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Working Paper: Selection of Borrowing Partners in Joint-Liability-Based Microcredit: Evidence from Framed Field Experiments in Bangladesh (2013)
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