Competitive Loan-Groups and Economic Achievements of Microcredit Loan Users in a Group-Lending Program: Estimating the Impacts of a Self-Selected Loan Group on the Household Income of its Members Evidence from India

Abstract

This study sheds light on self-selected loan groups formed under a microcredit group-lending program and estimates how and the extent to which post-determined group-related factors reflecting the group atmosphere and rivalry among the group members affect the economic achievements of the loan users. Based on data from Maharashtra State, India, this study finds that social homogeneity and monitoring among members work as building blocks to increase the household income of a loan user, while fairness and frequent meetings with other members work as stumbling blocks. The likelihood of increasing the household income is higher if a member joins a competitive loan-group in which socially homogenous members gather (fostering rivalry) and monitor each other but concentrate on their own business, meet less frequently, and are not granted equal treatment. These results suggest that pre-existing conditions are not the only factors responsible for economic success, and the posterior environment surrounding microcredit users also contributes to increasing their household income. In our study, rather than creating a comfortable egalitarian loan-group, the formation of a competitive loan-group can be a posterior factor leading to economic success.