Modeling group loan repayment behavior: New insights from Burkina Faso

Economic Development and Cultural Change

Volumn 48, Issue 3, 2000, Pages 638-655

  Paxton, Julia ^a   Graham, Douglas ^b   Thraen, Cameron ^b  

^a Ohio State University ^*

^b OHIO STATE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CREDIT PROVISION; GRAMEEN BANK; LENDING BEHAVIOR;

BURKINA FASO;

EID: 0034094419     PISSN: 00130079     EISSN: None     Source Type: Journal    
DOI: 10.1086/452613     Document Type: Article

References (20)

1. A recent inventory of microfinance institutions measured a 31% increase in average outstanding loan portfolio from 1994 to 1995; J. Paxton, "A World-wide Inventory of Microfinance Institutions" (Washington, D.C.: World Bank, 1996).
2. For example, see T. Besley and S. Coate, "Group Lending, Repayment Incentives, and Social Collateral," Journal of Development Economics 46, no. 1 (1995): 1-18. T. Besley, S. Coate, and G. Loury, "The Economics of Rotating Savings and Credit Associations," American Economic Review 83, no. 4 (1993): 792-810; M. Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); J. Stiglitz, "Peer Monitoring and Credit Markets," World Bank Economic Review 4 (1990): 351-66; H. R. Varian, "Monitoring Agents with Other Agents," Journal of Institutional and Theoretical Economics 146 (1990): 153-74.
3. For example, see T. Besley and S. Coate, "Group Lending, Repayment Incentives, and Social Collateral," Journal of Development Economics 46, no. 1 (1995): 1-18. T. Besley, S. Coate, and G. Loury, "The Economics of Rotating Savings and Credit Associations," American Economic Review 83, no. 4 (1993): 792-810; M. Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); J. Stiglitz, "Peer Monitoring and Credit Markets," World Bank Economic Review 4 (1990): 351-66; H. R. Varian, "Monitoring Agents with Other Agents," Journal of Institutional and Theoretical Economics 146 (1990): 153-74.
4. For example, see T. Besley and S. Coate, "Group Lending, Repayment Incentives, and Social Collateral," Journal of Development Economics 46, no. 1 (1995): 1-18. T. Besley, S. Coate, and G. Loury, "The Economics of Rotating Savings and Credit Associations," American Economic Review 83, no. 4 (1993): 792-810; M. Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); J. Stiglitz, "Peer Monitoring and Credit Markets," World Bank Economic Review 4 (1990): 351-66; H. R. Varian, "Monitoring Agents with Other Agents," Journal of Institutional and Theoretical Economics 146 (1990): 153-74.
5. For example, see T. Besley and S. Coate, "Group Lending, Repayment Incentives, and Social Collateral," Journal of Development Economics 46, no. 1 (1995): 1-18. T. Besley, S. Coate, and G. Loury, "The Economics of Rotating Savings and Credit Associations," American Economic Review 83, no. 4 (1993): 792-810; M. Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); J. Stiglitz, "Peer Monitoring and Credit Markets," World Bank Economic Review 4 (1990): 351-66; H. R. Varian, "Monitoring Agents with Other Agents," Journal of Institutional and Theoretical Economics 146 (1990): 153-74.
6. For example, see T. Besley and S. Coate, "Group Lending, Repayment Incentives, and Social Collateral," Journal of Development Economics 46, no. 1 (1995): 1-18. T. Besley, S. Coate, and G. Loury, "The Economics of Rotating Savings and Credit Associations," American Economic Review 83, no. 4 (1993): 792-810; M. Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); J. Stiglitz, "Peer Monitoring and Credit Markets," World Bank Economic Review 4 (1990): 351-66; H. R. Varian, "Monitoring Agents with Other Agents," Journal of Institutional and Theoretical Economics 146 (1990): 153-74.
7. The PPPCR is a nonprofit credit program targeting the poor in various regions of Burkina Faso and is loosely modeled after the Grameen Bank in Bangladesh.
8. See Besley, Coate, and Loury.
9. J. D. Von Pischke, J. Yaron, and R. M. Zander, "Why Credit Project Repayment Performance Declines," Savings and Development 22, no. 2 (1998): 149-80.
10. The PPPCR divides urban areas into sectors. Each sector contains an average of 30 solidarity groups.
11. Real interest rates have fluctuated from positive to negative as the economy has adjusted to the 1994 devaluation of the Franc de la Communauté Financiere Africaine.
12. The index is the summation of nine binary (yes/no) variables. The number of positive responses per group ranged from one to seven with an average of 3.5 and a standard deviation of 1.2.
13. Bollen provides the following definition of latent random variables: "Latent random variables represent unidimensional concepts in their purest form. Other terms for these are unobserved or unmeasured variables and factors. The observed variables or indicators of an unobserved variable contain random or systematic measurement errors, but the unobserved variable is free of these. Since all unobserved variables correspond to concepts, they are hypothetical variables" (K. A. Bollen, Structural Equations with Latent Variables [New York: Wiley, 1989]).
14. G. Arminger, J. Wittenberg, and A. Schepers, MECOSA 3: A Program System of the Analysis of General Mean- and Covariance Structures, User Guide (Friedrichsdorf: Aptech Systems, 1996).
15. An additional middle stage could be added to capture whether the individual with a repayment problem decides to tell the group. This stage was irrelevant in Burkina Faso where tight-knit communities allowed for a free flow of information regarding repayment problems.
16. For the purpose of this article, only the structural equations are included for simplicity; however, a series of measurement equations exists for the latent variables "homogeneity" and "domino effect." For a discussion of the econometric technique, refer to J. Paxton, "Determinants of Successful Group Loan Repayment: An Application to Burkina Faso" (Ph.D. diss., Ohio State University, 1996).
17. MECOSA represents the general approach that is the focus of this article. The term "MECOSA" also represents the MECOSA 3.0 software program authored by Gerhard Arminger, Jorg Wittenberg, and Andreas Schepers. In this article, the use of the term "MECOSA" should be understood by the reader to mean the general modeling method and not the specific software program.
18. C. Aburgre, "When Credit Is Not Due: Financial Services by NGOs in Africa," Small Enterprise Development, vol. 4, no. 4 (1993).
19. L. Viganò, "A Credit Scoring Model," Savings and Development 17, no. 4 (1993): 441-82.
20. G. A. Akerlof, "Procrastination and Obedience," Working Paper Series no. 13 (Institute for Policy Reform, Washington, D.C., 1991).