Social Connections and Group Banking

Arbeitspapier

Lending to the poor is expensive due to high screening, monitoring, and enforcement costs. Group lending advocates believe lenders overcome this by harnessing social connections. Using data from FINCA-Peru, I exploit a quasi-random group formation process to find evidence of peers successfully monitoring and enforcing joint-liability loans. Individuals with stronger social connections to their fellow group members (i.e., either living closer or being of a similar culture) have higher repayment and higher savings. Furthermore, I observe direct evidence that relationships deteriorate after default, and that through successful monitoring, individuals know who to punish and who not to punish after default.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Center Discussion Paper ; No. 913

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Analyses of Economic Development ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements ; Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
• Subject: Microfinance ; Group lending ; informal savings ; social capital ; Informeller Finanzsektor ; Social Capital ; Peru ; Mikrofinanzierung ; Soziale Beziehungen

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karlan, Dean S.
• Event: Veröffentlichung
• (who): Yale University, Economic Growth Center
• (where): New Haven, CT
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/98259
• Last update: 10.03.2025, 11:44 AM CET