Evalua&ng
the
Rela&ve
Merits
of
Group

 and
Individual
Liability
Micro‐Lending

      RBAP/MABS
Na&onal
Roundtable



    ...
Outline





Mo&va&on
   Defini&ons
   Study
Designs
   Results

Group
Liability
Loans

•  Pros
 (?)

    –  “Key
innova&on
responsible
for
expansion
of
access
to

       credit”
(Morduch...
Individual
Liability
Loans

•  Pros
 (?)

    –  Reduced
group
tension

    –  Preferred
product
for
many

    –  Increase...
Group
vs.
Individual
Liability
Loans

The
unanswered
ques&ons:


   –  Is
repayment
actually
higher
in
group
liability
tha...
Liability
vs.
Lending


•  Group
liability



    –  Members
are
borrowers
and
guarantors



•  Group
lending

    –  Grou...
Defining
Profitability



Profitability
as
key
ins&tu&onal
outcome
measurement

   –  Repayment

   –  Loan
size

   –  Growt...
Evalua&on
Design:
Product
Characteris&cs



•  Green
Bank
BULAK
product

   –  Women
in
rural
areas

   –  Two
levels
of
l...
Evalua&on
Design:
Conversion
Phase

•  Liability
structure



    –    169
exis&ng
centers
in
Leyte
(total)

    –    Rand...
Evalua&on
Design:
Expansion
Phase

•  Liability
structure(s)

    –  New
centers
in
Cebu,
Bohol,
Panay,
Negros

    –  Thr...
Selected
Results

•  Repayment

   –  No
measurable
difference
in
repayment
rates

   –  True
for
both
conversion
and
expan...
Selected
Results:
Con&nued

•  Dropout

    –  No
significant
difference
between
group
and
individual
liabili&es

    –  Les...
Selected
Results:
Con&nued

•  Time
alloca&on
of
Account
Officers

   –  Time
alloca&on
did
not
change
between
group
and
ind...
Selected
Results:

Con&nued

•  Center
rela&ons

   –  Reduced
monitoring
by
peers
(less
likely
to
be
able
to
predict

   ...
Results:
Summary

•  Liability
structure
had
no
effect
on
repayment

•  Individual
liability
can
lead
to
larger
lending
gro...
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valuating the Relative Merits of Group and Individual Liability Micro-Lending

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

  1. 1. Evalua&ng
the
Rela&ve
Merits
of
Group
 and
Individual
Liability
Micro‐Lending
 RBAP/MABS
Na&onal
Roundtable

 Innova&ons
for
Poverty
Ac&on
 2‐3
June
2010

  2. 2. Outline
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  3. 3. Group
Liability
Loans
 •  Pros
 (?)
 –  “Key
innova&on
responsible
for
expansion
of
access
to
 credit”
(Morduch;
Armendariz
de
Aghion,
Morduch;
Microcredit
Summit
Campaign
2005)
 –  Addresses
market
failures
of
adverse
selec&on
and
moral
hazard
 –  Peer
pressure
improves
repayment
 –  Increased
access
to
uncollateralized
loans
 •  Cons
 (?)
 –  Tension,
harming
social
networks
 –  Free‐riding
clients
 –  More
costly
to
good
clients;
difficult
to
aract
new
clients,
 dropout
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  4. 4. Individual
Liability
Loans
 •  Pros
 (?)
 –  Reduced
group
tension
 –  Preferred
product
for
many
 –  Increased
client
reten&on
and
growth
as
a
result
 •  Cons
 (?)
 –  Does
not
address
possibility
of
adverse
selec&on
and
moral
hazard
 –  Shi^s
burden
of
monitoring
and
enforcement
to
credit
officer
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  5. 5. Group
vs.
Individual
Liability
Loans
 The
unanswered
ques&ons:

 –  Is
repayment
actually
higher
in
group
liability
than
individual
 liability
lending?

 –  Is
there
a
tradeoff
in
terms
of
client
base?

 –  How
do
these
factors
affect
overall
ins&tu&onal
profitability?
 
IPA
and
Green
Bank
designed
an
experiment
to
answer
these
 ques&ons

 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  6. 6. Liability
vs.
Lending

 •  Group
liability


 –  Members
are
borrowers
and
guarantors
 •  Group
lending
 –  Group
structure
 –  Individual
liability
 This
project
tests
removal
of
group
liability,
not
of
other
group
 borrowing
characteris&cs
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  7. 7. Defining
Profitability
 Profitability
as
key
ins&tu&onal
outcome
measurement
 –  Repayment
 –  Loan
size
 –  Growth
of
client
base
 –  Member
reten&on
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  8. 8. Evalua&on
Design:
Product
Characteris&cs
 •  Green
Bank
BULAK
product
 –  Women
in
rural
areas
 –  Two
levels
of
liability:
group,
center
 –  Ini&al
loan
size:

P1000‐P5000
 –  Loan
term:

4‐6
months
 –  Weekly
center
mee&ngs
 –  Weekly
deposit
into
center,
group,
personal
savings
accounts
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  9. 9. Evalua&on
Design:
Conversion
Phase
 •  Liability
structure


 –  169
exis&ng
centers
in
Leyte
(total)
 –  Randomly
converted
centers
into
individual
liability
 –  Remaining
group
structure
did
not
change
 –  Social
influences
on
repayment
likely
remained
 •  Savings
 –  Dissolved
group,
center
savings
 –  Personal
savings
remain
 –  No
funds
saved
toward
center
ac&vi&es
 
Because
all
borrowers
were
screened
under
group
liability,
isolates
 impact
of
group
liability
peer
pressure
to
encourage
payment.
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  10. 10. Evalua&on
Design:
Expansion
Phase
 •  Liability
structure(s)
 –  New
centers
in
Cebu,
Bohol,
Panay,
Negros
 –  Three
liability
structures
 1.  Group
 2.  Individual

 3.  Phased‐in
individual
(group
liability
in
the
first
cycle
only)
 –  Liability
structure
randomly
assigned
 
Does
performance
change
when
clients
are
screened
into
the
 group
under
different
liability
structures?
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  11. 11. Selected
Results
 •  Repayment
 –  No
measurable
difference
in
repayment
rates
 –  True
for
both
conversion
and
expansion
phases
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  12. 12. Selected
Results:
Con&nued
 •  Dropout
 –  No
significant
difference
between
group
and
individual
liabili&es
 –  Less
likely
to
dropout
in
phased‐in
individual
 •  Client
appeal
 –  Individual
liability
centers
aracted
more
clients,
grew
larger
 –  Exis&ng
centers
converted
to
individual
liability
much
less
likely
to
 dissolve
 •  Account
Officer
appeal
 –  AOs
less
likely
on
average
to
open
centers
in
individual‐liability
or
 phased‐in
areas
than
group‐
(not
significant
on
individual)
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  13. 13. Selected
Results:
Con&nued
 •  Time
alloca&on
of
Account
Officers
 –  Time
alloca&on
did
not
change
between
group
and
individual
 centers
under
conversion
phase
 –  During
expansion,
AOs
spent
more
&me
(90
min
per
week)
on
 repayment
ac&vi&es
in
individual
liability
centers
 o Shi^
in
&me
away
from
program
introduc&on/marke&ng?
 Consistent
with
lower
likelihood
of
establishing
individual
centers.
 –  No
difference
in
&me
alloca&on
between
phased‐in
individual
&
 group
centers
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  14. 14. Selected
Results:

Con&nued
 •  Center
rela&ons
 –  Reduced
monitoring
by
peers
(less
likely
to
be
able
to
predict
 defaults)
 –  Less
social
cohesion?
 o  As
evidenced
by
less
spent
on
Christmas
par&es
 •  Center
composi&on
 –  Prior
members
more
likely
to
know
new
members
well
under
 individual
liability;
new
members
not
likely
to
know
each
other
 o  Exis&ng
members
no
longer
fear
bad
rela&onships

 –  Exis&ng
clients
were
not
uniformly
pro‐individual;
some
 supplemented
loans
through
other
ins&tu&ons
a^er
conversion
 Mo&va&on
 Defini&ons
 Study
Designs
 Results

  15. 15. Results:
Summary
 •  Liability
structure
had
no
effect
on
repayment
 •  Individual
liability
can
lead
to
larger
lending
groups
 •  Credit
officers

 –  Less
likely
to
open
individual
liability
centers
 –  Spend
more
&me
on
individual
liability
centers
 o  Might
change
with
greater
experience
with
individual
liability?
 
Expanding
individual
liability
lending
products
may
deepen
 outreach
and
provide
desired
flexibility
to
clients
 …but,
replica&on
needed
to
further
understand
these
effects.
 Mo&va&on
 Defini&ons
 Study
Designs
 Results


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