Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129978
Authors: 
Mahmud, Mahreen
Year of Publication: 
2015
Series/Report no.: 
School of Economics Discussion Papers 1509
Abstract: 
Microcredit loans were traditionally extended to groups of people. However, there is no clear evidence that joint liability does lead to better borrower performance and recent years have seen a shift towards individual liability lending. Utilizing the exogenous shift from individual to joint liability lending by a microfinance organization in Pakistan, we find evidence of significant improvement in borrower discipline. Borrowers are about 0.6 times as likely to miss a payment in any given month under joint liability relative to individual liability. We also use the exogenous variation in number of months borrowers had till the expiry of their individual liability loans at the time of the shift to study the kind of groups they formed. More time that borrowers had, the more likely they were to form groups with people they knew from before and met weekly. The time that borrower had to form group also correlated positively with borrower discipline.
Subjects: 
Microfinance
Group lending
Joint liability
JEL: 
D71
D82
G21
Document Type: 
Working Paper

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