valuating the Relative Merits of Group and Individual Liability Micro-Lending

Evalua&ngtheRela&veMeritsofGroupandIndividualLiabilityMicro‐Lending

RBAP/MABSNa&onalRoundtable

Innova&onsforPovertyAc&on

2‐3June2010

Outline

Mo&va&on Defini&ons StudyDesigns Results

• Pros– “Keyinnova&onresponsibleforexpansionofaccessto

credit”(Morduch;ArmendarizdeAghion,Morduch;MicrocreditSummitCampaign2005)

– Addressesmarketfailuresofadverseselec&onandmoralhazard

– Peerpressureimprovesrepayment– Increasedaccesstouncollateralizedloans

• Cons– Tension,harmingsocialnetworks

– Free‐ridingclients– Morecostlytogoodclients;difficulttoa\ractnewclients,

dropoutMo&va&on Defini&ons StudyDesigns Results

GroupLiabilityLoans

(?)

(?)

• Pros– Reducedgrouptension– Preferredproductformany

– Increasedclientreten&onandgrowthasaresult

• Cons– Doesnotaddresspossibilityofadverseselec&onandmoralhazard

– Shi^sburdenofmonitoringandenforcementtocreditofficer


IndividualLiabilityLoans

(?)

(?)

Groupvs.IndividualLiabilityLoans

Theunansweredques&ons:– Isrepaymentactuallyhigheringroupliabilitythanindividual

liabilitylending?

– Isthereatradeoffintermsofclientbase?

– Howdothesefactorsaffectoverallins&tu&onalprofitability?

IPAandGreenBankdesignedanexperimenttoanswertheseques&ons


Liabilityvs.Lending

• Groupliability– Membersareborrowersandguarantors

• Grouplending– Groupstructure– Individualliability

Thisprojecttestsremovalofgroupliability,notofothergroupborrowingcharacteris&cs


DefiningProfitability

Profitabilityaskeyins&tu&onaloutcomemeasurement– Repayment


– Loansize– Growthofclientbase– Memberreten&on

Evalua&onDesign:ProductCharacteris&cs

• GreenBankBULAKproduct– Womeninruralareas– Twolevelsofliability:group,center– Ini&alloansize:P1000‐P5000– Loanterm:4‐6months

– Weeklycentermee&ngs– Weeklydepositintocenter,group,personalsavingsaccounts


Evalua&onDesign:ConversionPhase

• Liabilitystructure– 169exis&ngcentersinLeyte(total)– Randomlyconvertedcentersintoindividualliability– Remaininggroupstructuredidnotchange– Socialinfluencesonrepaymentlikelyremained

• Savings– Dissolvedgroup,centersavings– Personalsavingsremain– Nofundssavedtowardcenterac&vi&es

Becauseallborrowerswerescreenedundergroupliability,isolatesimpactofgroupliabilitypeerpressuretoencouragepayment.


Evalua&onDesign:ExpansionPhase

• Liabilitystructure(s)– NewcentersinCebu,Bohol,Panay,Negros– Threeliabilitystructures

1. Group

2. Individual

3. Phased‐inindividual(groupliabilityinthefirstcycleonly)

– Liabilitystructurerandomlyassigned

Doesperformancechangewhenclientsarescreenedintothegroupunderdifferentliabilitystructures?


SelectedResults

• Repayment– Nomeasurabledifferenceinrepaymentrates– Trueforbothconversionandexpansionphases


SelectedResults:Con&nued

• Dropout– Nosignificantdifferencebetweengroupandindividualliabili&es– Lesslikelytodropoutinphased‐inindividual

• Clientappeal– Individualliabilitycentersa\ractedmoreclients,grewlarger

– Exis&ngcentersconvertedtoindividualliabilitymuchlesslikelytodissolve

• AccountOfficerappeal– AOslesslikelyonaveragetoopencentersinindividual‐liabilityor

phased‐inareasthangroup‐(notsignificantonindividual)



• Timealloca&onofAccountOfficers– Timealloca&ondidnotchangebetweengroupandindividual

centersunderconversionphase

– Duringexpansion,AOsspentmore&me(90minperweek)onrepaymentac&vi&esinindividualliabilitycenterso Shi^in&meawayfromprogramintroduc&on/marke&ng?Consistentwithlowerlikelihoodofestablishingindividualcenters.

– Nodifferencein&mealloca&onbetweenphased‐inindividual&groupcenters



• Centerrela&ons– Reducedmonitoringbypeers(lesslikelytobeabletopredict

defaults)

– Lesssocialcohesion?o AsevidencedbylessspentonChristmaspar&es

• Centercomposi&on– Priormembersmorelikelytoknownewmemberswellunder

individualliability;newmembersnotlikelytoknoweachothero Exis&ngmembersnolongerfearbadrela&onships

– Exis&ngclientswerenotuniformlypro‐individual;somesupplementedloansthroughotherins&tu&onsa^erconversion


Results:Summary

• Liabilitystructurehadnoeffectonrepayment

• Individualliabilitycanleadtolargerlendinggroups• Creditofficers

– Lesslikelytoopenindividualliabilitycenters– Spendmore&meonindividualliabilitycenters

o Mightchangewithgreaterexperiencewithindividualliability?

Expandingindividualliabilitylendingproductsmaydeepenoutreachandprovidedesiredflexibilitytoclients

…but,replica&onneededtofurtherunderstandtheseeffects.


valuating the Relative Merits of Group and Individual Liability Micro-Lending

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