Group Lending Programs Research Articles

Entrepreneurial Response to ?Bottom-up? Development Strategies in Zimbabwe

Group lending and business training programs aimed at small-scale entrepreneurs have captured the interest of development scholars, practitioners, and donors since the 1980s. Yet these strategies have not had much impact in the context of urban Zimbabwe. Building upon ethnographic research conducted in Harare, Zimbabwe and insights drawn from the Austrian school of economics, the case is made that group lending and business training programs in urban Zimbabwe fail to meet the needs of most informal entrepreneurs because they offer a poor cultural fit with the target population, and because they are rarely able to cultivate entrepreneurial skills such as innovation and market discovery among their clients.

Peer Monitoring, Social Ties and Moral Hazard in Group Lending Programs: Evidence from Eritrea

Summary In this paper, we investigate the impact of monitoring and social ties on moral hazard behavior within group lending programs. Our study is based on data from an extensive questionnaire held in Eritrea among participants of 102 groups. We separately analyze the impact of group leaders and other group members. We show that the monitoring and the social ties of group leaders and not the other group members reduce the moral hazard behavior within groups.

Loan Performance of Group-Based Microcredit Programs in the United States

Peer group lending programs in the United States adapt methodologies first used in developing countries and apply them domestically to benefit low-income communities. This article investigates the effects of context, program design, and staff as well as peer group actions on the loan performance of such programs in the United States. Based on surveys of programs across the country, loan delinquency is primarily a function of context, especially the credit risk of borrowers and time. However, evidence suggests that the payoff structure and peer group actions have discouraged some loan default. Peer group members must be persistently more vigilant than pro- gram staff members throughout the process to ensure loan repayment within the group. Expanding the clientele to the working poor in small towns and rural areas rather than focusing on welfare recipients in big cities may ensure greater financial viability of these programs in the United States.

An application of Mean–Covariance Structure Models for the analysis of group lending behavior

Understanding the influence of group dynamics (such as group homogeneity and the domino effect) on loan repayment is key to strengthening microfinance institutions in developing countries that employ the group lending methodology. Empirically, these conceptual variables have no perfect proxies and are suited for latent variable models. Mean and Covariance Structure Models (MECOSA) are a useful methodology for the incorporation of latent variables with metric, censored metric, dichotomous and ordinal indicators. Data from 140 groups from a group lending program in Burkina Faso were used to demonstrate the application and interpretation of MECOSA.

Group lending, local information and peer selection

This paper analyzes how group lending programs use joint liability to utilize local information that borrowers have about each other's projects through self-selection of group members in the group formation stage. These schemes are shown to lead to positive assortative matching in group formation. Faced with the same contract, this makes the effective cost of borrowing lower to safer borrowers: because they have safer partners, conditional on success their expected dues to the lender are lower than that of riskier borrowers. The resulting improvement in the pool of borrowers is shown to increase repayment rates and welfare.

The problem of transaction costs in group-based microlending: An institutional perspective

To be financially viable, group-based microlending needs to economize on transaction costs for both lenders and borrowers. Group lending programs vary in their transaction cost characteristics depending on their specific credit delivery arrangements and social contexts. This article illustrates these arguments by examining the challenges faced by various group lending programs Worldwide. It also examines how social capital, or the lack of it, affects the transaction costs and operations of three typical group lending arrangements — group loan with joint liability, individual loan with joint liability and individual loan with individual liability.

AN ECONOMIC ANALYSIS OF GROUP LENDING PROGRAMS IN DEVELOPING COUNTRIES

The Developing EconomiesVolume 31, Issue 1 p. 102-121 Free Access AN ECONOMIC ANALYSIS OF GROUP LENDING PROGRAMS IN DEVELOPING COUNTRIES John DEVEREUX, John DEVEREUXSearch for more papers by this authorRaymond P. H. FISHE, Raymond P. H. FISHESearch for more papers by this author John DEVEREUX, John DEVEREUXSearch for more papers by this authorRaymond P. H. FISHE, Raymond P. H. FISHESearch for more papers by this author First published: March 1993 https://doi.org/10.1111/j.1746-1049.1993.tb00995.xCitations: 17AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL References 1 Adams, D. W. The Conundrum of Successful Credit Projects in Floundering Rural Financial Markets,” Economic Development and Cultural Change, Vol. 36, No. 2 (January 1988). 2 Adams, D. W., and Pablo Romero, A. A. Group Lending to the Rural Poor in the Dominican Republic: A Stunted Innovation,” Canadian Journal of Agricultural Economics, Vol. 29, No. 2 (July 1981). 3 Allen, F. Credit Rationing and Payment Incentives,” Review of Economic Studies, Vol. 50, No. 4 (October 1983). 4 Besanko, D., and Thakor, A. V. Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets,” International Economic Review, Vol. 28, No. 3 (October 1987). 5 Bhatt, V. V. On Financial Innovations and Credit Market Evolution,” World Development, Vol. 16, No. 2 (February 1988). 6 Bratton, M. Financing Smallholder Production: A Comparison of Individual and Group Credit Schemes in Zimbabwe,” Public Administration and Development, Vol. 6, No. 2 (April-June 1986). 7 Braverman, A., and Guasch, J. L. Rural Credit Markets and Institutions in Developing Countries: Lessons for Policy Analysis from Practice and Modern Theory,” World Development, Vol. 14, No. 10/11 (OctoberNovember 1986). 8 Braverman, A., and Guasch, J. L. Institutional Analysis of Credit Cooperatives,” mimeographed (World Bank, 1988). 9 Burkett, P. Notes on Group Lending in Developing Countries,” mimeographed (Department of Economics, University of Miami, 1988). 10 Chan, Yuk-Shee, and Kanatas, G. Asymmetric Valuation and the Role of Collateral in Loan Contracts,” Journal of Money, Credit, and Banking, Vol. 17, No. 1 (February 1985). 11 Larsen, R. J., and Marx, M. L. An Introduction to Mathematical Statistics and Its Applications ( Englewood Cliffs , N.J. : Prentice-Hall, 1981). 12 Mosley, P., and Dahal, R. P. Lending to the Poorest: Early Lessons from the Small Farmers' Development Programme, Nepal,” Development Policy Review, Vol. 3, No. 2 (November 1985). 13 Owusu, K. O., and Tetteh, W. An Experiment in Agricultural Credit: The Small Farmer Group Lending Programme in Ghana (1969–1980),” Savings and Development, Vol. 6, No. 1 (1982). 14 Saito, K. A., and Villanueva, D. P. Transaction Costs of Credit to the Small-Scale Sector in the Philippines,” Economic Development and Cultural Change, Vol. 29, No. 3 (April 1981). 15 Schaefer-Kehnert, W. Success with Group Lending in Malawi,” in Rural Financial Markets in Developing Countries, Ed. J. D. Pischke et al. ( Washington , D.C. : World Bank, 1983). 16 Vogel, R. C., and Larson, D. W. Illusion and Reality in Allocating Agricultural Credit,” in Undermining Rural Development with Cheap Credit, Ed. D. W. Adams et al. ( Boulder , Colo. : Westview Press, 1984). 17 Von Pischke, J. D., and Adams, D. W. Fungibility and the Design and Evaluation of Agricultural Credit Projects,” American Journal of Agricultural Economics, Vol. 62, No. 4 (November 1980). Citing Literature Volume31, Issue1March 1993Pages 102-121 ReferencesRelatedInformation

Peer Monitoring and Credit Markets

A major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced. One partial solution is peer monitoring: having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt. Peer monitoring is largely responsible for the successful financial performance of the Grameen Bank of Bangladesh and of similar group lending programs elsewhere. But peer monitoring has a cost. It transfers risk from the bank, which is in a better position to bear risk, to the cosigner. In a simple model of peer monitoring in a competitive credit market, this article demonstrates that the transfer of risk leads to an improvement in borrowers' welfare.

Transaction Costs of Credit to the Small-Scale Sector in the Philippines

Previous articleNext article No AccessTransaction Costs of Credit to the Small-Scale Sector in the PhilippinesKatrine Anderson Saito, and Delano P. VillanuevaKatrine Anderson Saito Search for more articles by this author , and Delano P. Villanueva Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Economic Development and Cultural Change Volume 29, Number 3Apr., 1981 Article DOIhttps://doi.org/10.1086/451275 Views: 23Total views on this site Citations: 19Citations are reported from Crossref Copyright 1981 The University of ChicagoPDF download Crossref reports the following articles citing this article:K. Vidyarani, T. Maheshkumar Determinants of Access to Formal Credit for the Micro, Small and Medium Enterprises in India: An Inter-regional Analysis, SEDME (Small Enterprises Development, Management & Extension Journal): A worldwide window on MSME Studies 49 (Jun 2022): 097084642211062.https://doi.org/10.1177/09708464221106273Salman Wahab, Adnan Safi, Zeeshan Wahab, Nawaz Ali Shah, Xibao Zhang Choice between formal and informal financing in cottage industry firm: The application of robust regression, Journal of Public Affairs 22, no.11 (Aug 2020).https://doi.org/10.1002/pa.2241Meenakshi Rajeev, B. P. Vani, Veerashekharappa Group lending through an SHG bank-linkage programme in India: transaction costs and social benefits, Development in Practice 30, no.22 (Aug 2019): 168–181.https://doi.org/10.1080/09614524.2018.1508418Christian Masiak, Joern H. Block, Alexandra Moritz, Frank Lang, Helmut Kraemer-Eis How do micro firms differ in their financing patterns from larger SMEs?, Venture Capital 21, no.44 (Apr 2019): 301–325.https://doi.org/10.1080/13691066.2019.1569333Guye Gelgelu Deksiso Assessment of the factors affecting the performance of micro and small scale enterprise: The case of Wolkite town, Guraghe zone, Southern Ethiopia, Journal of Development and Agricultural Economics 10, no.66 (Jun 2018): 192–199.https://doi.org/10.5897/JDAE2017.0899Daniel Domeher, Godwin Musah, Kwasi Poku Micro determinants of the extent of credit rationing amongst SMEs in Ghana, International Journal of Social Economics 44, no.1212 (Dec 2017): 1796–1817.https://doi.org/10.1108/IJSE-03-2016-0089Yuko Nikaido, Jesim Pais, Mandira Sarma What hinders and what enhances small enterprises’ access to formal credit in India?, Review of Development Finance 5, no.11 (Jun 2015): 43–52.https://doi.org/10.1016/j.rdf.2015.05.002Yuko Nikaido, Jesim Pais, Mandira Sarma What Hinders and What Enhances Small Enterprisess Access to Formal Credit in India?, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2557900Nelson F. Souza-Sobrinho Macroeconomics of bank interest spreads: evidence from Brazil, Annals of Finance 6, no.11 (Sep 2009): 1–32.https://doi.org/10.1007/s10436-009-0131-0I. Hashi, V. Z. Toçi Financing Constraints, Credit, Rationing, and Financing Obstacles: Evidence from Firm Level Data in South Eastern Europe, (Jan 2010): 62–97.https://doi.org/10.1057/9780230302211_4S. Safdar Hosseini, Mohammed Khaledi, Richard Gray An analysis of transaction costs of Islamic banks in rural Iran, Agribusiness 25, no.33 (Mar 2009): 291–313.https://doi.org/10.1002/agr.20211Machiko Nissanke, Ernest Aryeetey Institutional Analysis of Financial Market Fragmentation in Sub-Saharan Africa: A Risk-Cost Configuration Approach, (Jan 2008): 112–145.https://doi.org/10.1057/9780230594012_6Anjali Kumar, Manuela Francisco Enterprise Size, Financing Patterns and Credit Constraints in Brazil: Analysis of Data from the Investment Climate Assessment Survey, SSRN Electronic Journal (Jan 2007).https://doi.org/10.2139/ssrn.960152Barrie Pettman, Gamini Herath Analysis of the potential and problems of new institutional economics for third world development, International Journal of Social Economics 32, no.1010 (Oct 2005): 877–892.https://doi.org/10.1108/03068290510618515Martin Petrick Empirical measurement of credit rationing in agriculture: a methodological survey, Agricultural Economics 33, no.22 (Sep 2005): 191–203.https://doi.org/10.1111/j.1574-0862.2005.00384.xJohn DEVEREUX, Raymond P. H. FISHE AN ECONOMIC ANALYSIS OF GROUP LENDING PROGRAMS IN DEVELOPING COUNTRIES, The Developing Economies 31, no.11 (Mar 2007): 102–121.https://doi.org/10.1111/j.1746-1049.1993.tb00995.xAlbert Berry, Dipak Mazumdar Small-Scale Industry in the Asian-Pacific Region, Asian-Pacific Economic Literature 5, no.22 (Sep 1991): 35–67.https://doi.org/10.1111/j.1467-8411.1991.tb00048.xDennis Anderson Small industry in developing countries: A discussion of issues, World Development 10, no.1111 (Nov 1982): 913–948.https://doi.org/10.1016/0305-750X(82)90034-1Shazida Jan Mohd Khan, Abdul Rahim Anuar Access to Finance, (): 92–111.https://doi.org/10.4018/978-1-5225-2835-7.ch006