Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98259
Authors: 
Karlan, Dean S.
Year of Publication: 
2005
Series/Report no.: 
Center Discussion Paper 913
Abstract: 
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.
Subjects: 
Microfinance
Group lending
informal savings
social capital
JEL: 
O12
O16
O17
Z13
Document Type: 
Working Paper

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