Creditting the Fittest: An Inquiry into the Formation of Lending Groups in Microcredit Programs in Rural Bangladesh

This study uses household-level data compiled in Bangladesh in 1992 in order to study the formation of lending groups in three microcredit programs, namely, Grameen, Bangladesh Rural Advancement Committee (BRAC) and Bangladesh rural Development Board (BRDB). The study attempts to understand the role of demographical attributes in the formation of lending groups in microcredit programs in rural Bangladesh. It researches individual and group-level hypotheses regarding the mechanisms inherent to the attraction-selection-attrition model (ASA). While previous research has focused on an individuals attitude towards risk, this study has demographic attributes as its focal point. Study findings include:

• Sufficient grounds exist to accept the group-level hypothesis concerning the outcome of the ASA model;
• Lending groups do indeed show higher levels of homogeneity than the environments from which they originated;
• Results, however, are ambiguous when it comes to individual-level hypotheses researching the mechanisms inherent to the ASA model.