Paper

Using Repayment Data to Test Across Models of Joint Liability Lending

Bridging the gap between theoretical and empirical work on joint liability lending
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This paper tests four models of joint liability lending (JLG) on their repayment predictions capability. It includes new implications for testing the model and includes:

  • Co-variation of returns;
  • Cooperation among borrowers;
  • Selection criteria;
  • Loan size on repayment.

The paper discusses the model of Stiglitz and concludes that repayment rate is higher for groups that witness:

  • Cooperation among members;
  • High productivity;
  • High project return correlation.

Describing the test of model developed by Banerje, Besley, the paper infers that repayment rate is higher for groups with:

  • Higher joint liability payment;
  • Lower interest rate;
  • Lower costs of monitoring;
  • Higher loan size;
  • More outside borrowing options;
  • Higher borrower productivity.

It elucidates the results of tests on the model of Besley and interprets that repayment rate is:

  • Lower for groups with:
    • Higher rate of interest;
    • Higher covariance of returns.
  • Higher for groups with:
    • Stronger official or unofficial penalties;
    • Higher productivity.

Interpreting the results of test on the fourth model developed by Ghatak, the paper construes that repayment rate is:

  • Lower for groups with higher rate of interest;
  • Higher for groups that have:
    • Ability to screen;
    • Higher loan size;
    • Higher productivity;
    • Higher project correlation.

The paper concludes by stating that the four models agree on some dimensions and conflict on others.

About this Publication

By Ahlin, C, Townsend, R.
Published