272/2016 Jonathan de Quidt, Thiemo Fetzer and Maitreesh Ghatak

Numerous authors point to a decline in joint liability microcredit, rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization-an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.

Culture and Development

Journal of Development Economics

https://doi.org/10.1016/j.jdeveco.2018.05.010