Working Paper: NBER ID: w18847
Authors: Li Gan; Manuel A. Hernandez; Yanyan Liu
Abstract: Group lending has been widely adopted in the past thirty years by many microfinance institutions as a means to mitigate information asymmetries when delivering credit to the poor. This paper proposes an empirical method to address the potential omitted variable problem resulting from unobserved group types when modeling the repayment behavior of group members. We estimate the model using a rich dataset from a group lending program in India. The estimation results support our model specification and show the advantages of relying on a type-varying method when analyzing the probability of default of group members.
Keywords: Group Lending; Microfinance; Repayment Behavior; Heterogeneous Types
JEL Codes: C35; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unobserved group heterogeneity (C92) | repayment behavior (G51) |
| observable characteristics (C90) | repayment behavior (G51) |
| unobserved group type (C92) | repayment behavior (G51) |
| group type (type h) (B50) | probability of default (G33) |
| group type (type l) (L00) | probability of default (G33) |
| individual and loan characteristics (G51) | repayment behavior (G51) |
| group types (Y90) | marginal effects on repayment behavior (E71) |
| accounting for group types (M41) | better identification and screening in microfinance (O12) |