Repaying Microcredit Loans: A Natural Experiment on Liability Structure. Issue 6 (2nd June 2020)

• Record Type: Journal Article
• Authors: Mahmud, Mahreen
• Is Part Of: Journal of development studies. Volume 56:Issue 6(2020)
• Page Start: 1161
• Page End: 1176
• Publication Date: 2020-06-02
• Subjects: Economic development -- Periodicals; Economic history -- 1945- -- Periodicals; Developing countries -- Economic conditions -- Periodicals; Développement économique -- Périodiques; Histoire économique -- 1945- -- Périodiques; Pays en voie de développement -- Conditions économiques -- Périodiques; 338.91
• DOI: 10.1080/00220388.2019.1632432
• Languages: English
• ISSNs: 0022-0388

Abstract

Abstract: This paper utilises a natural experiment – the shift from individual to joint lending by a microfinance organisation in Pakistan – to show significant improvement in borrower discipline under joint liability loans. I find that a possible mechanism for this impact is the degree of pre-existing social connection between the group members. For the mechanism analysis, I use the exogenous variation in the number of months borrowers had till the expiry of their individual liability loans at the time of the announcement of the shift to joint leading as an instrument for the degree of social connection of the group.