Joint Liability Groups Research Articles

Bogus joint liability groups in microfinance

In a random sample of clients of CFPAM, the largest microlender in China, 73% of all joint-liability groups practice Lei Da Hu. That is, one person uses all group members’ loans in a single project. We call such borrower groups ‘bogus groups’. The Lei Da Hu practice violates a key premise of group lending, that each borrower must use their loan in a separate project (what we call ‘standard group’). We extend the theory of group lending by analyzing the endogenous formation and coexistence of standard and bogus groups and characterize the efficient lending terms. The chosen group form depends on the borrower productivities and probability of success. Bogus groups are formed by heterogeneous borrowers, when the gains from larger expected output exceed the foregone default risk diversification. Accounting for bogus groups in their lending strategy can help MFIs raise productive efficiency and borrower welfare.

Impact of Microcredit on Women Empowerment Indicators: An empirical reserach in the state of Uttarakhand

Women Empowerment has been on national agenda of every government. In developing nation women comprises fifty percent of the population so empowering them is crucial for development and nation building. Various Microfinance Institutions (MFIs) extends microcredit/loan via group model (Self Help Groups and Joint Liability Groups) to the marginalised segment particularly women groups and minorities primarily residing in rural areas with an aim to empower them and foster their socio-economic development. Previous studies have shown that microcredit has positive impact, but providing credit alone does not guarantee empowerment of the member beneficiaries. From past studies it can be concluded that empowerment demand an integrated approach from all the participating bodies/institutions involved, only then can be the objective of socio-economic development be accomplished. Since today very limited literature is available on microcredit and its impact. The current research examines the impact of microcredit on women empowerment indicators (decision making, awareness and psychological factors) of member beneficiaries in Haridwar district of Uttarakand. Women are organized into groups (Joint Liability Groups) and provided microcredit /loan. Non Probability sampling (Convenience Sampling) technique is adopted in sample selection where access to microcredit serves as independent variable and women empowerment indicators serves as dependent variables. The study consists of sample size of 362 member beneficiaries. Hypothesis testing is applied to find the significant association between the dependent and independent variables. Inferential statistics i.e Chi sq test is used to find the association/relationship between access to microcredit and empowerment indicators. Results indicate that there is no association between access to microcredit and women empowerment indicators. The results indicate that microcredit vial JLGs makes no impact on the empowerment indicators, making no improvement in the lives of its beneficiaries. There is need of regular and continuous impact assessment by credit institutions, participation from states and local bodies, must be analysis of socio-cultural factors and formation of women self administered system are some of the recommendations of the study. The results can be used by various stakeholders in designing better approach and as it provides them information on the areas which needs improvement so that microcredit can bring positive difference in the lives of beneficiaries. Also, it opens doors for further research in order to explore the socio-cultural factors which influence women empowerment.

Problems Faced by Microcredit Borrowers in Joint Liability Groups (JLGS): Empirical Evidence of NBFC-MFIS in Uttarakhand

Microcredit is proved to be an effective tool for socio-economic development of its borrowers. In the past various models took shape in developing nations and made credit/loan available at the doorstep of the borrowers. The framework for delivering credit is called credit delivery model. Joint Liability Groups (JLGs) were widely adopted by various microfinance institutions in providing credit to the borrower groups. Many studies talked about the success of JLGs but very little literature was available on the problems faced by borrowers in JLGs. Data collected from Haridwar district is used to study the problems faced by borrowers in JLGs. Relation between Group association and problems faced by borrowers was also studied. The findings show that the major problems which borrowers faced include-strict repayment schedule, Non repayment/late repayment of loan, lack of loan information, peer pressure among group members etc. There also exist a relationship between group association and problems faced by borrowers.

A little skin in the game: Reducing moral hazard in joint liability lending through a mandatory collateral requirement

While joint liability group lending has been shown to resolve information problems in rural credit markets, the mutual insurance against default provided by such contracts is subject to moral hazard, resulting in the well-known free-riding problem. As with standard insurance, one solution to this problem is the imposition of a deductible, which under a joint liability contract amounts to an individual collateral requirement. Conceptually, such a hybrid contract should reduce morally hazardous behavior but have an ambiguous impact on credit market participation, as the collateral requirement would simultaneously crowd in and ration out different types of borrowers. In order to empirically test these effects, we employ a framed field experiment with credit group members in Tanzania. Our results show that the imposition of a modest (20%) individual collateral requirement in a joint liability group significantly increases effort supplied to the loan-financed project by 5% while reducing credit market participation by 7 percentage points. This amounts to an overall reduction in loan defaults of approximately 20%. Although we conceptually would expect the effect of the individual collateral requirement to vary by risk aversion and social connectedness, we find no such heterogeneous impacts in the data.

The enforcement advantage of external monitoring: Lessons from an experiment with joint-liability groups in Burkina Faso

The theoretical literature sees cost-effective peer monitoring as a key to the success of joint-liability over individual-liability credit. Yet peer monitoring may also involve particular costs, such as the cost of denouncing wrongdoing, that are larger for group members than for the lender. Moreover, in practice, joint-liability credit often involves monitoring by the lender. To investigate the role of external monitoring and explore the nature of the costs associated with internal group monitoring, we conduct a field experiment in joint-liability credit groups in Burkina Faso. In the experiment, we randomly increase the intensity of external monitoring in credit groups. We find that external monitoring crowds out monitoring by the group leader, causes loan renewal decisions to be more severe and the handling of individual default to be more state-dependent. In addition, increased external monitoring decreases favoritism towards members of the leader’s family. We argue that external monitoring reduces the costs of “pointing fingers” at moral-hazardous behaviors and of sanctioning.

External Social Ties and Loan Repayment of Group Lending Members: A Case Study of Pro Mujer Mexico

We investigate how external social ties, that is, social ties with individuals outside the borrowing group, determine loan repayments of individual borrowers in joint liability group lending. We measure the resources in external ties in terms of the informal risk insurance arrangement they embed. The ties borrowers have with individuals outside the group and the informal risk insurance arrangement they represent, help to survive in general, and repay their loans in particular. The risk of losing these ties increases the willingness to repay loans, that is, these ties can be regarded as a form of collateral to stimulate loan repayment. The extent to which these external ties are effectively pledged as collateral depends on the extent to which social networks of group members are overlapping: the more borrowers’ networks of external ties overlap (referred to as information channels), the higher the risk of losing the informal risk insurance arrangement in case of non-repayment. We use data from 802 mapped social networks of borrowers’ internal and external ties from a microfinance institution in Mexico. We find that group borrowers with external ties, representing a strong informal risk insurance arrangement while at the same time being information channels, have lower repayment problems

Loan demand by microfinance borrowers

Purpose The purpose of this paper is to explore what determines the loan size/demand in a micro-finance group and makes comparative account of self-help groups and joint liability groups. Design/methodology/approach Using primary data and carried out survey (questionnaire and focus group discussion) for data collection. While for econometrics OLS regression has been used. Findings The study finds that employment, landownership and years spent by members in group has positive impact on loan demand by micro finance borrowers. Research limitations/implications This study points out the fact that economic variables along with group characteristics has positive implication on loan demand by borrowers. Practical implications This study would propel further research in group dynamics in micro-finance area. Social implications This study attempts to bring out the fact that economic position of micro-finance members along with its group status has bearing on its loan demand position. Originality/value The authors conducted this study using primary data, and all the collected data and study bring out the fact that older membership in groups are positive for loan demand by borrowers.

Rural Credit and Community Relationships in a Northern Vietnamese Village

The purpose of this paper is to examine the conditions of success in rural credit in developing countries, based on the investigation of a Vietnamese case. The rural credit institutions in Vietnam have achieved splendid results, compared with those in other Asian countries. Some studies of rural credit in Vietnam have paid attention to the group lending scheme based on the Grameen Bank model or to social ties among borrowers. However, these studies did not show howgroup lending and social ties function in the rural credit system, so the author interview ed people in a northern Vietnamese village. The author found that joint liability groups formed by borrowers are just nominal and have no provision for borrowers’ default. Nevertheless, the bank loans have rapidly penetrated many villagers, and have never been defaulted. This is because the entire hamlet participates in monitoring. Almost all social activities here take place in hamlets. If someone causes trouble in a hamlet, it may result in economic and social sanctions from others, including non-borrowers. However, young villagers with non-agriculture income are under less economic pressure to follow the rules of behavior that have traditionally governed interactions in their hamlets. The author concludes that Vietnamese rural credit has succeeded by depending on rural communities characteristic of Vietnam, but an effective monitoring system must be created.

Can group incentives alleviate moral hazard? The role of pro-social preferences

Incentivizing unobservable effort in risky environments, such as in insurance, credit, and labor markets, is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets. Ensuring incentive-compatibility through state-contingent contracts between principal and agent, however, is undesirable for risk-averse agents. We provide a theoretical intuition on how pro-social preferences between agents in a joint liability group contract can ensure incentive-compatibility. Two independent large-scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory. In particular, effort decreases when making agents' payoff less state-dependent, but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro-social concerns. Activating strategic motives slightly increases effort further; particularly in non-anonymous groups with high network strength. The results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent, such group policies can improve efficiency when agents are pro-social.

Exploring the Social Capital of the Urban Poor for Successful Microenterprise Development Programs in Ethiopia

Microenterprise development forms the major component in the promotion of broad-based economic growth and improvement of the well-being of the urban poor in Ethiopia. To this end, creating employment opportunities and formalising informal enterprises become priority areas. However, the performance of microenterprise development in embracing the informality has fallen short of expectations owing mainly to limitations on joint-liability groups. This study argues that given group lending remains the main approach in financing the poor, microenterprise development programs that involve informality need a better understanding of the social capital of informal entrepreneurs. Thus, applying the network approach to social capital, the study examined the configuration of personal networks of informal entrepreneurs in Addis Ababa. Multi-stage sampling procedures involving purposive and systematic random-walk techniques were employed to draw samples. Ego-network data were collected through Name Generator and Name Interpreter surveys. Data were analysed using Social Network Analysis procedures. The results of the study revealed that religion, ethnicity, sex and marital status are the main attributes underlying homophily among informal entrepreneurs. However, informal entrepreneurs exhibit heterophilous networks on education, occupation, income and age. Using socio-demographic attributes of homophily and heterogeneity (following stages of business development) is, thus, imperative in microenterprise development.

Dynamic Incentives and Microfinance Borrowers

In recent years microfinance has been recognised as one of the policy mechanisms to achieve the goal of financial inclusion. Different lending models have been appropriated in microfinance sector to provide micro-loans to microfinance borrowers and their likely socio-economic impact on microfinance borrowers varies across different lending models. In case of microfinance, credit contracts between lenders and borrowers are designed in such a manner that borrowers’ initial loans are smaller but increases with each loan cycle over a period of time, termed as progressive lending.2 The present study using primary data collected from Mirzapur district in Uttar Pradesh attempts to explore the determinants/variables that explain progressive loan demand by microfinance borrowers in self-help groups (SHGs) and joint liability groups (JLGs). Using logit model, the paper concludes that in both SHGs and JLGs, longer association with microfinance groups helps in availing progressive loans from SHGs/microfinance institutions (MFIs) followed by loans procured from other sources also compel microfinance borrowers to demand larger loans from MFIs primarily for paying loan instalments. In addition to this income, size of group, number of dependents in household and asset endowment characteristics of SHG/JLG members also affect progressive loan demand by SHG/JLG members.

Exclusions in inclusive programs: state-sponsored sustainable development initiatives amongst the Kurichya in Kerala, India

We critically discuss the impact of sustainable development initiatives in Kerala, India, on biodiversity and on women farmers in the matrilineal Adivasi community of the Kurichya-tribe in Wayanad. By contextualizing development programs regarding the specifically gendered access to land, division of labor, distribution of knowledge and decision-making power, we situate our analysis within the theoretical framework of feminist political ecology. We first outline women’s gaining of social and political space in local self-government institutions (Panchayath) and then critically discuss the impacts of women’s farming groups (Joint Liability Groups: JLGs). Decentralization and development programs have aimed at empowering women and reducing poverty through improved food security. However, little success has materialized, as patriarchal power structures concerning decision-making processes as well as control over the most valuable resources (land and rice) and traditional knowledge have been maintained. Whereas women’s self-help groups (Kudumbasree) in Kerala have enhanced their position, women’s farming groups (JLGs), by contrast, have brought little betterment. In some cases they have even downsized women’s management and knowledge of resources related to agriculture and do not integrate or enhance Kurichya women’s knowledge. As some women are now introducing high-yielding rice seeds and fertilizer and as it is impossible for them to control land and get access to traditional rice seeds—the domain of men—we contest the notion of women being considered the preservers of agrobiodiversity. We argue, rather, that the construction and transformation of ecological traditional knowledge is highly dependent on the gendered multi-scaled power structures of state and community.

Joint liability taxation and group auditing

This article proposes a taxation policy based on joint liability among taxpayers. We show that it is possible to obtain a Pareto improving equilibrium in which the per-capita tax burden is reduced, and taxpayers are better off with respect to the standard individual liability taxation.

Role of Financial Agencies in Integrating Small Farmers into a Sustainable Value Chain:A Synthesis-Based on Successful Value Chain Financing Efforts

With changing agricultural business environment, the conventional direct marketing method is becoming a less feasible option for small and marginal farmers due to emergence of supermarkets, increasing consumers' preference for value-added food products, high production and marketing cost associated with small scale of operations and increasing consumers' emphasis on quality, safety and appearance of the product. Hence farmers must enter into a value chain in order to adapt to the changing business environment. Capital investment on production and processing aspects is a prerequisite in order to achieve and authenticate the quality, safety and attractiveness standards. Small and marginal farmers are least preferred financing clientele due to lack of strong collateral security and low risk-bearing ability. But, they form the major chunk of the population dependent on agriculture, contributing more than half of total agricultural production. Hence we need alternative approaches that can either reduce the financial risks associated with production and marketing process at the farmers' level, or approaches which can shift the farmers' financial risk entirely onto the other stakeholders in the value chain. Approaches like contract-based financing and cascade financing increase the possibility of success in business and reduce farmers' business failure risk. Joint liability group financing increases the financial risk-bearing ability of the farmers with reduction of defaulter risk and increase in creditworthiness of the individual farmer. Interdependence financing increases the small farmers' access to credit services. Indirect supplier financing shifts the farmers' financial risk on the other stakeholders in the value chain.

Microfinance Delivery Institutions in India-Governance and Management Challenges

The paper discusses the importance of microfinance for reducing poverty and for the growth and development of the nation. It highlights the importance of group based professionally assisted microfinance delivery channels like Self Help Groups and Joint Liability Groups, their collective and collaborative strengths in reaching the un served & underserved masses and the challenges they face in terms of raising capital, reducing transaction costs and capacity building. It also focuses on opportunities and threats to the microfinance sector and further goes on to emphasise that leveraging technology, entering into strategic partnership with third parties having common interests, capacity building and designing products as per changing needs of customer would address the challenges effectively. The role of Government and Regulatory Bodies would be crucial so that innovative practices and experiments are encouraged while keeping vigil on new developments.

Optimal group size with joint liability group lending strategy

Purpose – This paper aims to offer a theory on optimal group size. To overcome the problems of institutional credit facilities to the poor and marginal people, Joint Liability Group Lending (JLGL) is often considered as a better option. However, the literature in the field is surprisingly silent about the issue of group-size. This paper tries to fill the vacuum in a theoretical framework. Design/methodology/approach – Using a standard theoretical model, this paper shows that even with costless peer monitoring, there exists an upper bound on the size of group, and this upper bound is exactly pinned down by the strength of the social sanction. Findings – This paper shows that under reasonable specification of effort cost, as group size increases, both optimal cooperative effort level and the deviation incentive from that effort level rise monotonically for any individual borrower. Thus, given the strength of social sanction, the rising incentive for deviation uniquely determines the optimal group size even in absence of free riding in peer monitoring. Research limitations/implications – The theoretical results derived in the paper require empirical verification which is, however, tricky because of the problems associated with quantifying social sanctions. Practical implications – This paper argues that the group size should be larger in more integrated communities which have better social cohesion among its members. Originality/value – This paper shows that, for a given extent of joint liability the borrowers need to bear, the group size in joint liability group lending should be designed according to the strength of social sanction prevailing in the society to achieve social efficiency.

Group lending without joint liability

This paper contrasts individual liability lending with and without groups to joint liability lending. We are motivated by an apparent shift away from the use of joint liability by microfinance institutions, combined with recent evidence that a) converting joint liability groups to individual liability groups did not affect repayment rates, and b) an intervention that increased social capital in individual liability borrowing groups led to improved repayment performance. First, we show that individual lending with or without groups may constitute a welfare improvement over joint liability, so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how the lender's lower transaction costs in group lending can encourage insurance by reducing the amount borrowers have to pay to bail one another out. Third, we discuss how group meetings might encourage insurance, either by increasing the incentive to invest in social capital, or because the time spent in meetings can facilitate setting up insurance arrangements. Finally, we perform a simple simulation exercise, evaluating quantitatively the welfare impacts of alternative forms of lending and how they relate to social capital.

Collective Farming Through SHGs: A Case of Kudumbashree

Kutumbashree was launched in 1998 as a community network to work in tandem with local self-governments for poverty eradication and women empowerment. Kutumbashree is one of the largest women’s movement in Asia with a membership of 41 lakhs representing equal number of families. Collective farming is an initiative introduced by Kutumbashree to encourage cultivation by neighbourhood groups (NHGs/SHGs). It facilitates to enchance the agricultural production by bringing fallow and cultivable waste land into agricultural use, and has significance as a food security measure. Women enter the programme as cultivators as opposed to agricultural labour and control the means of production and access formal credit which helps in increasing the returns from farming. Joint liability groups (JLGs) of women farmers are formed under the collective farming initiative to help women cultivators access agricultural creditfrom the banking system. The paper highlights the various processes of promoting the JLGs of SHG women and how they take up collective farming in Idukki district of Kerala by presenting various case studies. Through the collective farming programme of SHGs, the twin benefits of poverty eradication, food security and financial returns through agriculture, and increased agricultural production are being accomplished by the poor women.

Role of Utkarsh Microfinance Institution in the area of Women Empowerment

Women are the most crucial elements of the social structure and are playing a pivotal role in the socioeconomic scenario of Allahabad District. Microfinance has come to play a major role in many gender and development strategies because of its direct relationship to both poverty alleviation and to the empowerment of women. Microfinance programs like the Joint Liability Groups (JLGs) in India have been promoted for their positive economic impact and the belief that they empower women. The survey was conducted on 100 respondents from Twenty JLGs of Utkarsh Microfinance Institution in Allahabad District, and the analysis was done to study the empowerment of women through microfinance. The results strongly demonstrate that on an average, there is a significant increase in women empowerment of the Joint Liability Group members of Utkarsh Microfinance Institution.

The effects of microfinance programs on women members in traditional societies

One of the stated goals of microfinance programs is to increase the bargaining power of women within the household. However, little is known about other ways women in patriarchal communities may be affected by these programs. This study assessed the effects of the membership in a microfinance joint liability group (MJLG) on the lives and social networks of its women members by focusing on the interplay of MJLG practices and gendered cultural practices such as ‘purdah’ (veiling of the face). Using in-depth interviews of 35 women in Lucknow, a city in northern India, the study found that, overall, respondents who were members of an MJLG reported developing new and stronger relationships with other members of the group. These social interactions were found to be deeper among women who were using the microloans for self-employment than among women who were redirecting their loan funds to other family members. The study also found that the adaptability of microfinance organizations to the local culture appeared to enable women to join MJLGs with ease and to contribute economically to their families.