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Group Size and Social Ties in Microfinance Institutions

Klaus Abbink, Bernd Irlenbusch and Elke Renner

No 1, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: Microfinance programmes provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. In an experiment we investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide, whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects. We observe high repayments rates, which are robust across treatment. Group lending outperforms individual lending. Self-selected groups show a high but less stable willingness to contribute.

Keywords: microcredits; group lending; public goods; laboratory experiments; development economics (search for similar items in EconPapers)
JEL-codes: C90 H41 I38 O16 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-pbe
Date: 2002-06-04
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Related works:
Journal Article: Group Size and Social Ties in Microfinance Institutions (2006) Downloads
Working Paper: Group Size and Social Ties in Microfinance Institutions (2004) Downloads
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