Determinants of Repayment Performance of Group-Based Lending Programs: Evidence from Eritrea

This paper focuses on exploring the determinants of repayment performance, taking the case of two Eritrean group-based lending microfinance programs. The paper investigates:

• Whether the repayment performance is positively influenced by peer-screening, monitoring and enforcement mechanisms?
• Whether splitting up the independent variables into those related to the group leader and those related to other group members gives a different result than what the joint liability lending theory indicates?

The document:

• Provides a brief review of empirical literature;
• Describes the two Eritrean group-based lending programs;
• Summarizes the main characteristics of the sample used in the empirical analysis.

The paper proceeds with listing the findings of the analysis:

• There is no link between peer monitoring by, and social ties of, group members other than the group leader;
• Variables related to the group leader are partially able to explain the repayment performance of groups, and of group members other than the group leader;
• There is a link between group leaders' knowing other members before the formation of the group, and less probability of repayment problems from occurring.

The paper finally concludes with the observation that:

• The finding in case of Eritrean programs provides results contrary to the group-based theoretical wisdom existing so far.