Determinants of Repayment Performance of Group-Based Lending Programs: Evidence from Eritrea

Exploring the effect of joint liability on repayment performance through an empirical analysis
Download 35 pages

This paper focuses on exploring the determinants of repayment performance, taking the case of two Eritrean group-based lending microfinance programs. The paper investigates:

  • Whether the repayment performance is positively influenced by peer-screening, monitoring and enforcement mechanisms?
  • Whether splitting up the independent variables into those related to the group leader and those related to other group members gives a different result than what the joint liability lending theory indicates?

The document:

  • Provides a brief review of empirical literature;
  • Describes the two Eritrean group-based lending programs;
  • Summarizes the main characteristics of the sample used in the empirical analysis.

The paper proceeds with listing the findings of the analysis:

  • There is no link between peer monitoring by, and social ties of, group members other than the group leader;
  • Variables related to the group leader are partially able to explain the repayment performance of groups, and of group members other than the group leader;
  • There is a link between group leaders' knowing other members before the formation of the group, and less probability of repayment problems from occurring.

The paper finally concludes with the observation that:

  • The finding in case of Eritrean programs provides results contrary to the group-based theoretical wisdom existing so far.

About this Publication

By Hermes, N., Lensink, R. , Habteab, M.