Group Lending in Microfinance Institutions: What Makes it Work

1
Group Lending in Microfinance Institutions What
Makes it Work?

• By Sarah Kopp
• Econ 539
• March 9, 2009

2
Introduction

• Formal Financial Markets
• Informal Markets
• Microfinance Institutions
• Group Lending

Picture from http//www.farmlab.com
3
Summary of the Literature

• What affects repayment rates?
• Social Ties
• Positive impact
• Homogeneity
• Negative impact
• Leadership
• Social ties of leader have
• a greater impact than the social ties of group
  members

Picture from http//www.grameenfoundation.org
4
Analysis of the Literature

• Diversity
• Study location
• Method
• Endogeneity
• Natural experiment (FINCA-Peru)
• Microfinance experiment (Cassar et al 2007)

5
Policy Implications

• Focus on monitoring and screening, however that
  is best accomplished in each circumstance
• Self-selection creates trade-off between social
  ties and homogeneity

6
(No Transcript)