Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19874
Authors: 
Rai, Ashok S.
Klonner, Stefan
Year of Publication: 
2007
Series/Report no.: 
Proceedings of the German Development Economics Conference, Göttingen 2007 / Verein für Socialpolitik, Research Committee Development Economics 18
Abstract: 
We investigate how well social collateral does as an alternative to traditional physical collateral. We do so by studying cosigned loans - a borrower´s loan is backed by the personal guarantee of a cosigner. We use a regression discontinuity approach with data from South Indian bidding Roscas. Our main finding is that cosigners do indeed provide social collateral: doubling the number of cosigners halves the probability of arrears for high risk borrowers. We then distinguish between different theories of social collateral. Cosigners may be e¤ective as a monitoring device (a borrower would pay to rid herself of the nuisance of a cosigner) or as an insurance device (a borrower would pay for the benefit of a cosigner). We show that these two interpretations of cosigning have different empirical predictions in the context of a bidding Roscas. We find support for the insurance role of cosigners.
Subjects: 
credit
default
cosigner
rosca
JEL: 
G21
O16
D82
Document Type: 
Conference Paper

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