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Title: Group structure and behaviour in microfinance : empirics from Sierra Leone
Author: Sabin, Nicholas Edward
ISNI:       0000 0004 5358 9883
Awarding Body: University of Oxford
Current Institution: University of Oxford
Date of Award: 2014
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The use of group lending for poverty alleviation is a widespread feature of modern microfinance. The structure of joint-liability credit - if one member defaults the others are held financially responsible - produces a natural tension between a borrower's social and economic interests. This study integrates theory from economics, sociology, and behavioural experiments to address the question, "How do social and economic mechanisms interact to shape a microcredit group's financial behaviour?" The empirical analysis involves an original dataset from a microfinance institution in Sierra Leone. The total dataset includes 7,025 joint-liability borrowers involved in 47,931 repayment transactions from 2005 to 2011. The empirical methods used are diverse: ethnographic fieldwork, GPS spatial analysis, social affiliation survey design, and multilevel statistical analysis of loan performance data. The original work is structured as three distinct papers. In the first paper, I examine social collateral, the formal use of a borrower's relationships as security against loan default. How does a group's spatial structure affect the efficacy of social collateral? Spatial concentration improves a group's economic performance up to a certain level after which the effect reverses and performance declines. The relationship is driven by a social trade-off between ability and willingness to enforce the loan. Further, groups that consist of multiple spatial fragments produce worse performance. Spatially fragmented groups are prone to splitting into social factions. In the second paper, I question what drives the self-selection process of microcredit group formation. The results show that group leaders prefer members with pre-existing social ties, who are spatially proximate, and have matching business types. The preference for socio-spatial factors is likely motivated by reducing the risk of strategic default by group members. In the third paper, I explore how economic cooperation in small groups evolves over years of repeated interaction. Despite the selective retention of better performing groups, average cooperation rates consistently decline, in terms of contribution and effort. Further, variance across groups continues to increase over 30 months of repeated interaction, suggesting that convergence to a stable cooperation rate has not occurred. Given that group lending exhibits many of the factors found to promote cooperation in laboratory experiments, it is surprising to find such a marked decline in this field setting. Overall, this thesis contributes to economic sociology by dissecting the difficult trade-offs between social and economic motives in group lending and offers policy implications for microfinance institutions regarding group formation heuristics, contract design, and loan management.
Supervisor: Reed-Tsochas, Felix; Barron, David Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Africa ; Finance ; Organisational behaviour ; Development economics ; Poverty ; Sociology ; Economics ; microfinance ; microcredit ; group lending ; joint liability ; behaviour ; Sierra Leone ; embeddedness ; economic sociology ; spatial structure ; cooperation