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Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor, and enforce each other's loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender's overall profitability and the poor's access to financial markets. The authors worked with a bank in the Philippines to conduct a field experiment to examine these issues. They randomly assigned half of the 169 pre-existing group liability 'centers' of approximately twenty women to individual-liability centers (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in center size by attracting new clients.

Bank Policy --- Conversion --- Debt Markets --- Exchange --- Finance and Financial Sector Development --- Financial Literacy --- Financial Markets --- Good --- Group Lending --- Joint Liability --- Lender --- Liability --- Loans --- Micro-Enterprises --- Microcred Microfinance --- Poverty --- Repayment --- Repayment Rate --- Repayment Rates --- Social Capital --- Transaction --- Transaction Costs

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Despite their potential importance and ease of modification, impacts of monitoring and loan recovery arrangements on micro-credit groups' repayment performance have rarely been studied. Data on 3,350 expired group loans in 300 Indian villages highlight that regular monitoring and audits, high repayment frequency, consumption smoothing support through rice credit, and having group savings deposited with the lender all significantly increase repayment rates. Estimated magnitudes of their effects vastly exceed those of members' socio-economic characteristics. Significantly lower repayment on loans originating in externally provided grant resources suggests that stringent monitoring will be essential for these to have a sustainable impact.

Bankruptcy and Resolution of Financial Distress --- Commercial banks --- Consumption smoothing --- Credit groups --- Debt Markets --- Deposit --- Finance and Financial Sector Development --- Group loans --- Group savings --- Insurance --- International bank --- Lender --- Loan --- Loan recovery --- Micro-credit --- Micro-finance --- Microcredit --- Moral hazard --- Poor borrowers --- Repayment --- Repayment performance --- Repayment rates --- Trust fund

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Regulation allows microfinance institutions to evolve more fully into banks, particularly for institutions aiming to take deposits. But there are potential trade-offs. Complying with regulation and supervision can be costly. The authors examine the implications for the institutions' profitability and their outreach to small-scale borrowers and women. The tests draw on a new database that combines high-quality financial data on 245 of the world's largest microfinance institutions with newly-constructed data on their prudential supervision. Ordinary least squares regressions show that supervision is negatively associated with profitability. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, the analysis finds that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability. The pattern is consistent with the notion that profit-oriented microfinance institutions absorb the cost of supervision by curtailing outreach to market segments that tend to be more costly per dollar lent. By contrast, microfinance institutions that rely on non-commercial sources of funding (for example, donations), and thus are less profit-oriented, do not adjust loan sizes or lend less to women when supervised, but their profitability is significantly reduced.

Access to Finance --- Banks --- Banks and Banking Reform --- Debt Markets --- Depositors --- Deposits --- Economies of scale --- Finance and Financial Sector Development --- Financial institutions --- Financial services --- Financial system --- International bank --- Loan --- Loan sizes --- MFI --- MFIS --- Microfinance --- Microfinance institution --- Microfinance institutions --- Outreach --- Profitability --- Repayment --- Repayment rates --- Start-up

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Regulation allows microfinance institutions to evolve more fully into banks, particularly for institutions aiming to take deposits. But there are potential trade-offs. Complying with regulation and supervision can be costly. The authors examine the implications for the institutions' profitability and their outreach to small-scale borrowers and women. The tests draw on a new database that combines high-quality financial data on 245 of the world's largest microfinance institutions with newly-constructed data on their prudential supervision. Ordinary least squares regressions show that supervision is negatively associated with profitability. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, the analysis finds that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability. The pattern is consistent with the notion that profit-oriented microfinance institutions absorb the cost of supervision by curtailing outreach to market segments that tend to be more costly per dollar lent. By contrast, microfinance institutions that rely on non-commercial sources of funding (for example, donations), and thus are less profit-oriented, do not adjust loan sizes or lend less to women when supervised, but their profitability is significantly reduced.

Access to Finance --- Banks --- Banks and Banking Reform --- Debt Markets --- Depositors --- Deposits --- Economies of scale --- Finance and Financial Sector Development --- Financial institutions --- Financial services --- Financial system --- International bank --- Loan --- Loan sizes --- MFI --- MFIS --- Microfinance --- Microfinance institution --- Microfinance institutions --- Outreach --- Profitability --- Repayment --- Repayment rates --- Start-up

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This paper studies the role of morality in the decision to repay debts. Using a field experiment with a large Islamic bank in Indonesia, the paper finds that moral appeals strongly increase credit card repayments. In this setting, all of the banks late-paying credit card customers receive a basic reminder to repay their debt one day after they miss the payment due date. In addition, two days before the end of a ten-day grace period, clients in a treatment group also receive a text message that cites an Islamic religious text and states that "non-repayment of debts by someone who is able to repay is an injustice." This message increases the share of customers meeting their minimum payments by nearly 20 percent. By contrast, sending either a simple reminder or an Islamic quote that is unrelated to debt repayment has no effect on the share of customers making the minimum payment. Clients also respond more strongly to this moral appeal than to substantial financial incentives: receiving the religious message increases repayments by more than offering a cash rebate equivalent to 50 percent of the minimum repayment. Finally, the paper finds that removing religious aspects from the quote does not change its effectiveness, suggesting that the moral appeal of the message does not necessarily rely on its religious connotation.

Access to credit --- Adverse selection --- Arrears --- Assets --- Bank indonesia --- Banking --- Bankruptcy and resolution of financial distress --- Banks and banking reform --- Borrowers --- Checking account --- Collect debts --- Collections --- Communications --- Consumer choice --- Consumer choices --- Credit card --- Credit card debt --- Credit control --- Credit market --- Current debt --- Customer service --- Customers --- Debt --- Debt forgiveness --- Debt markets --- Debt relief --- Debt repayment --- Debtor --- Debts --- Default --- Deposit --- E-Business --- Emerging markets --- Equity --- Equity fund --- Estate private sector development --- Ethical behavior --- Ethical global equity --- Ethical global equity fund --- Exchange --- Fair trade --- Finance and financial sector development --- Financial development --- Financial products --- Forgiveness --- Gambling --- Global equity --- Goods --- Grace period --- Grants --- Human capital --- Human rights --- Income --- Indebted --- Indebted poor countries --- Insurance --- Interest --- Interest rate --- Interest rates --- Interested party --- International bank --- Investment --- Investment management --- Investor --- Islamic bank --- Islamic law --- Late payment --- Law --- Liquidity --- Liquidity constraint --- Loan --- Loan repayment --- Moral hazard --- Moral suasion --- Mortgage --- New credit --- Outsourcing --- Outstanding debt --- Partner bank --- Payment --- Payments --- Peer pressure --- Penalties --- Penalty --- Political economy --- Portfolio --- Price --- Pricing --- Property --- Public debt --- Real estate --- Repayment --- Repayment behavior --- Repayment of debt --- Repayment of debts --- Repayment rate --- Repayment rates --- Responsible investment --- Restructuring --- Revenue --- Risk --- Saving --- Savings --- Savings account --- Savings accounts --- Services --- Share --- Shares --- Socially responsible investment --- Sovereign debt --- Stocks --- Student debt --- Student loans --- Trade --- Usury laws