The Empirics of Microfinance: What Do We Know?

This paper presents empirical evidence on the working of joint liability group lending and the trade-off between MFIs financial performance and outreach. Few empirical studies have investigated the impact of microfinance on reducing existing information asymmetries. The paper contains three empirical studies on joint-liability group lending. Study findings indicate that:

• Individual group members who have stronger social connections to other group members are more likely to repay their loans and save more;
• Members with stronger social connections are better able to monitor each other and enforce repayment;
• Monitoring and enforcement are positively related to group performance;
• Trust between group members is more important for group performance than trust in society as a whole;
• Social and cultural homogeneity of group members improves performance.

The fourth study examines financial performance and outreach on a data set of 124 MFIs in 49 countries. It seeks to establish empirical evidence for a trade-off between depth of outreach and profitability. Study findings indicate that individual-based MFIs focus more on wealthier clients than group-based MFIs.