Group Versus Individual Liability: A Field Experiment in the Philippines

By X. Giné, Dean S. Karlan. 2006

118 citations recorded by the source corpus.

Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor, and enforce each other's loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lenders overall profitability and the poor's access to financial markets. The authors worked with a bank in the Philippines to conduct a field experiment to examine these issues. They randomly assigned half of the 169 pre-existing group liability 'centers' of approximately twenty women to individual-liability centers (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in center size by attracting new clients.

Subfields: Economics and Econometrics, Gender Studies, Soil Science

View Paper: https://www.semanticscholar.org/paper/851abad060deafea451fc6fda97615b186728691

Citations in the corpus

Experimental Evidence on Returns to Capital and Access to Finance in Mexico (2008, unknown): “Several recent articles use randomized experiments to examine some aspects of access to finance, including the impact of consumer credit (Karlan and Zinman 2008b) and the comparative roles of joint and individual liability in microfinance groups (Giné and Karlan 2006).”
Social Connections and Group Banking (2007, unknown): “2 See Zeller (1998), Wydick (1999) and Ahlin and Townsend (2007) (this Feature).”
Access to Finance (2008, unknown): “Initial evidence finds both techniques to be successful (Giné and Karlan 2006).”
Systematic Review. What is the evidence of the impact of microfinance on the well-being of poor people? (2011, unknown): “Goldacre (2008) and Duflo et al.”
Promising approaches to address the needs of poor female farmers (2010, unknown): “…in using group lending to overcome the need for collateral in reaching out to poor rural Bangladeshi women, it has recently relaxed the group liability clause in the Grameen II program by allowing defaulters to renegotiate their loans without invoking group pressure (Giné and Karlan 2006 ).”
Access to Financial Services (2009, unknown): “Recently, many MFIs have moved away from group lending products to individual lending, especially in cases where the borrowing needs of customers starts to diverge; initial evidence has shown both techniques to be successful (Gine and Karlan 2006).”
Field Experiments: A Bridge between Lab and Naturally Occurring Data (2007, unknown): “Karlan (2005, 2006), for example, represent excellent examples of research that uses both lab and field experiments to explore behavior of female entrepreneurs in Ayacucho, Peru, in an attempt to predict default rates on loans.”
The supply- and demand-side impacts of credit market information (2010, unknown): “In the absence of such an institution, lenders of noncollateralized loans must resort to an array of informal mechanisms ranging from joint liability (Besley and Coate, 1995; Ghatak and Guinnane, 1999; Gine and Karlan 2006), to relationship banking, and to information sharing in the ‘credit officer ”