- Title
- Social Capital and Group Banking
- Author(s)
- Dean S. Karlan Dean Karlan (Princeton University)
- 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 quasirandom 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.
- Creation Date
- 2005-05
- Section URL ID
- RPDS
- Paper Number
- karlan_d_soccap_grp_bankingpaper.pdf
- URL
- https://rpds.princeton.edu/sites/rpds/files/media/karlan_d_soccap_grp_bankingpaper.pdf
- File Function
- Jel
- O12, O16, O17, Z13
- Keyword(s)
- microfinance, group lending, informal savings, social capital, Peru
- Suppress
- false
- Series
- 5