Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups

• Published in: Journal of development economics Vol. 107; pp. 65 - 83
• Main Authors: Giné, Xavier, Karlan, Dean S.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2014; Elsevier Sequoia S.A
• Subjects: Access to finance; Borrowing; Default; Development economics; Economic analysis; Financial services; Group lending; Group liability; Informal economies; Joint liability; Lending institutions; Liabilities; Liability; Loans; Micro-enterprises; Microfinance; Philippines; Repayments; Social capital; Studies; Philippines; G21; Group lending; Group liability; Social capital; Access to finance; O12; Joint liability; O17; O16; Microfinance; Micro-enterprises; Informal economies; C93; D91; D71; D82
• ISSN: 0304-3878; 1872-6089
• DOI: 10.1016/j.jdeveco.2013.11.003

Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in short-run or long-run default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.