Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Joint liability in a classic microfinance contract: review of theory and empirics

Joint liability in a classic microfinance contract: review of theory and empirics PurposeThe purpose of this paper is to investigate the role of joint liability in improving the repayment performance of a microfinance program.Design/methodology/approachThis is a systematic review of the theoretical and empirical literature.FindingsThe theoretical literature has shown, using models of peer selection, peer monitoring and peer pressure, that joint liability overcomes both the informational and enforcement failures present in credit markets for the poor. However, the empirical literature does not yield a clear answer on how much of the success of microfinance programs can be attributed to the effect of joint liability alone without considering the effect of other instruments used by microfinance programs. Further, it is seen that joint liability does not work in isolation, but its effect is dependent on social, cultural and economic environment.Research limitations/implicationsAn important future research agenda could be to study the roles of different overlapping mechanisms in group lending and to look at their interactions.Practical implicationsThe concept of joint liability works well both in the rural and urban areas, but different social, cultural and economic factors should be analyzed before initiating a microfinance program. In developed regions, focus should be on strengthening peer selection and peer monitoring, as information problems are prevalent. In underdeveloped regions, the major problem is of strategic default, so the focus should be on strengthening social sanctions.Social implicationsFindings can be used for optimal design of credit contracts for the poor.Originality/valueThe paper reviews the existing literature on – “whether and how” – joint liability lending works in inefficient credit markets and comes up with practical implications for the microfinance sector. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Economics and Finance Emerald Publishing

Joint liability in a classic microfinance contract: review of theory and empirics

Studies in Economics and Finance , Volume 34 (2): 15 – Jun 5, 2017

Loading next page...
 
/lp/emerald-publishing/joint-liability-in-a-classic-microfinance-contract-review-of-theory-7G14IGvyT3

References (45)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1086-7376
DOI
10.1108/SEF-02-2016-0040
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to investigate the role of joint liability in improving the repayment performance of a microfinance program.Design/methodology/approachThis is a systematic review of the theoretical and empirical literature.FindingsThe theoretical literature has shown, using models of peer selection, peer monitoring and peer pressure, that joint liability overcomes both the informational and enforcement failures present in credit markets for the poor. However, the empirical literature does not yield a clear answer on how much of the success of microfinance programs can be attributed to the effect of joint liability alone without considering the effect of other instruments used by microfinance programs. Further, it is seen that joint liability does not work in isolation, but its effect is dependent on social, cultural and economic environment.Research limitations/implicationsAn important future research agenda could be to study the roles of different overlapping mechanisms in group lending and to look at their interactions.Practical implicationsThe concept of joint liability works well both in the rural and urban areas, but different social, cultural and economic factors should be analyzed before initiating a microfinance program. In developed regions, focus should be on strengthening peer selection and peer monitoring, as information problems are prevalent. In underdeveloped regions, the major problem is of strategic default, so the focus should be on strengthening social sanctions.Social implicationsFindings can be used for optimal design of credit contracts for the poor.Originality/valueThe paper reviews the existing literature on – “whether and how” – joint liability lending works in inefficient credit markets and comes up with practical implications for the microfinance sector.

Journal

Studies in Economics and FinanceEmerald Publishing

Published: Jun 5, 2017

There are no references for this article.