Selection of borrowing partners in joint liability-based microcredit: Evidence from framed field experiments in Bangladesh

Sugato Chakravarty, Abu Zafar Shahriar

    Research output: Contribution to journalArticleResearchpeer-review

    Abstract

    We analyze partner selection decisions in the formation of borrowing groups in joint liability based microcredit. We do so within the context of a framed field experiment with the owners of small businesses in rural Bangladesh. We find that when, irrespective of their project status, borrowers are required to make joint liability payments, risky borrowers will offer side payments that are sufficiently large to attract safe borrowers, leading to the formation of heterogeneous risk-matched groups. We discuss the implications of heterogeneous risk matching for the survival and success of small enterprises, and their financiers, in countries with a weak institutional environment.
    Original languageEnglish
    Pages (from-to)129 - 144
    Number of pages16
    JournalEntrepreneurship: Theory and Practice
    Volume39
    Issue number1
    DOIs
    Publication statusPublished - 2015

    Cite this

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    abstract = "We analyze partner selection decisions in the formation of borrowing groups in joint liability based microcredit. We do so within the context of a framed field experiment with the owners of small businesses in rural Bangladesh. We find that when, irrespective of their project status, borrowers are required to make joint liability payments, risky borrowers will offer side payments that are sufficiently large to attract safe borrowers, leading to the formation of heterogeneous risk-matched groups. We discuss the implications of heterogeneous risk matching for the survival and success of small enterprises, and their financiers, in countries with a weak institutional environment.",
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    Selection of borrowing partners in joint liability-based microcredit: Evidence from framed field experiments in Bangladesh. / Chakravarty, Sugato; Shahriar, Abu Zafar.

    In: Entrepreneurship: Theory and Practice, Vol. 39, No. 1, 2015, p. 129 - 144.

    Research output: Contribution to journalArticleResearchpeer-review

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