Abstract
The success of group lending in developing countries has been attributed
to the ability of the institution to mitigate asymmetric information
problems in credit markets. Previous research has offered a number
of explanations for this phenomenon: social ties between borrowing
group members, internal group pressure to repay loans, and peer monitoring.
This research presents empirical tests on borrowing group data from
Guatemala which indicate that peer monitoring significantly effects
borrowing group performance through stimulating intragroup insurance.
Group pressure is found to have a small effect in deterring moral
hazard, while the effect of social ties among members is statistically
insignificant.
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