Using Repayment Data to Test Across Models of Joint Liability Lending

This paper tests four models of joint liability lending (JLG) on their repayment predictions capability. It includes new implications for testing the model and includes:

• Co-variation of returns;
• Cooperation among borrowers;
• Selection criteria;
• Loan size on repayment.

The paper discusses the model of Stiglitz and concludes that repayment rate is higher for groups that witness:

• Cooperation among members;
• High productivity;
• High project return correlation.

Describing the test of model developed by Banerje, Besley, the paper infers that repayment rate is higher for groups with:

• Higher joint liability payment;
• Lower interest rate;
• Lower costs of monitoring;
• Higher loan size;
• More outside borrowing options;
• Higher borrower productivity.

It elucidates the results of tests on the model of Besley and interprets that repayment rate is:

• Lower for groups with:
  • Higher rate of interest;
  • Higher covariance of returns.
• Higher for groups with:
  • Stronger official or unofficial penalties;
  • Higher productivity.

Interpreting the results of test on the fourth model developed by Ghatak, the paper construes that repayment rate is:

• Lower for groups with higher rate of interest;
• Higher for groups that have:
  • Ability to screen;
  • Higher loan size;
  • Higher productivity;
  • Higher project correlation.

The paper concludes by stating that the four models agree on some dimensions and conflict on others.