Lending group sizes & other microcredit tidbits

Lending group sizes: Read something recently stating that repayment rates were highest among a studied selection of lending groups when the group had 14 people in it.  I find this fascinating – is it something like Dunbar’s number for close friends, instead of general social connections?  What I don’t totally understand is why the number would be as large as 14.  It seems to me that the social pressure exerted by any one individual on others would decrease linearly with the number of group members – that is, I can put more pressure on 5 other people to repay their loans than on 14, because of my own time constraints.  Or perhaps the limits on social pressure are outweighed by the implicit pressure of having 13 other examples of people successfully repaying their loans, instead of just 4?  Freakonomics mentioned some research recently about the power of implicit social pressure (or sanction) in guiding behavior, with regard to people seeing examples or merely believing that a majority of others were acting in a certain way.  Perhaps one could think of living up to an example (of loan repayment, in this case) as a way of earning social capital, instead of actively spending it by pressuring other group members to repay their loans.

Social determinants of lending group access: Another predictable but still interesting fact is that self-selecting lending groups are sometimes reluctant to take on members who are too poor – lacking social capital as well as financial (and isn’t that a metaphor for poverty in general?).  It does make sense to view current poverty as deterministic of future entrepreneurial success, from the POV of another lending group member, but I also wonder if group members would view occasional poverty (i.e. brought on by a recent illness) differently than chronic poverty.  How long does someone have to be abjectly poor before a lending group is more likely to reject them?  That’s an interesting question.  [NB: Can’t find citation for this, although I think it may have come from Understanding Poverty.)

Monthly vs. weekly repayment schedules: This was a wonderful study – an analysis of whether Indian MFI clients were more likely to repay their loans if they made weekly repayments, monthly repayments, or monthly repayments with weekly group meetings regardless.  Repayments didn’t actually vary in a statistically significant manner across any of the three repayment schemes, although the monthly group actually had the lowest rate of missed payments according to the raw data.  I say “wonderful” because this knowledge is a great step towards designing lending programs that are better suited to the variable and unpredictable incomes of the poor – it’s quite valuable to understand that time-consuming weekly repayments aren’t necessary to pressure clients into repaying, which may give them more flexibility with their repayments (and use of loans).

2 thoughts on “Lending group sizes & other microcredit tidbits

    1. Hi Justin,

      I’ll have links to the original studies in a few weeks, when I’m back home in the US – will put up a reference post then, so that people know where to look for updated links. Thanks for asking! I needed to have a few people push me in that direction. : )


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