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...ate poverty at the BoP, it must be examined from a neutral, rather than an overly optimistic, lens. MFIs operate in very difficult contexts in order to provide financial services to the world’s poor (=-=Feigenberg et al. 2011-=-; Schreiner 2002). Thus, all of the threats associated with microfinance from both the MFIs’ and borrowers’ perspectives must be acknowledged in order to propel this industry and future research forwa...

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... of asymmetric information in the credit markets(Karlan and Zinman, 2009). It further links to the work looking at mechanisms that cansimprove access to finance, such as social capital (Karlan, 2007; =-=Feigenberg et al., 2011-=-) andsjoint liability (Giné and Karlan, 2011). The setting of the current study, a for-profit lender insAlbania, extending credit under individual liability also fits the pattern of the secondsgenerat...

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...icial effects on health and well-being.1 Most of the empirical evidence has centered on statistical associations between social capital and other variables. Definitive causation has been hard to establish [Helliwell 2001], and the putative causal mechanisms involved in social capital’s economic and health effects have often been discussed loosely with little hard evidence [Sobel 2002]. As an exception to this, a few recent studies have shown that social connections create economic benefits specifically by acting as collateral to secure transactions and reduce moral hazard [Karlan et al. 2009; Feigenberg et al. 2011; Jackson and Schneider 2011]. These studies have demonstrated that people are motivated to make good on commitments to repay loans and protect property – in effect, fulfilling implicit contracts – so as not to jeopardize their relationships with people they know or, alternatively, risk their standing within close-knit groups (for example, ethnic communities). The studies provide convincing evidence of economic benefits that follow directly from social cohesion in the context of close relationships. But important questions remain unanswered. Does social connectedness provide demonstrable benef...

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...roup lending may contribute to the creation of social capital, and therefore, may induce IJ.3 Our analysis is motivated by two influential recent empirical studies. Gine and Karlan (2011) found that removing the joint liability clause, but retaining the group meetings, of a random subset of borrowing groups of Green Bank in the Philippines had no meaningful effect on repayment rates. In our model, this outcome arises when the newly individually liable groups have sufficient social capital to continue to assist one another with repayments, as under EJ. Indeed, both Gine and Karlan (2011) and Feigenberg et al. (2011) find evidence for intra-group transfers to help a borrower repay her loan even without explicit joint liability.4 Secondly, Feigenberg 2An earlier study Cull et al. (2009) puts this number at 51% using 2002/04 data involving 315 institutions. The year 2009 is one for which the largest cross-section of lending methodologies is available. Solidarity group loans defined by MIX as those for which “some aspect of loan consideration depends on the group, including credit analysis, liability, guarantee, collateral, and loan size and conditions.” Individual loans are “made to individuals, and any gua...