Is Group Lending A Good Enforcement Scheme for Achieving High Repayment Rates?: Evidence from Field Experiments in Vietnam

Microfinance institutions employ various kinds of incentive schemes but estimating the effect of each scheme is not easy due to endogeneity bias. We conducted field experiments in Vietnam to capture the role of joint liability, monitoring, cross-reporting, social sanctions, communication and group formation in borrowers’ repayment behavior. We find that joint liability contracts cause serious free-riding problems, inducing strategic default and lowering repayment rates. When group members observe each others’ investment returns, participants are more likely to choose strategic default. Even after introducing a cross-reporting system and/or penalties among borrowers, the default rates and the ratios of participants who chose strategic default under joint liability are still higher than those under individual lending. We also find that joint liability lending often failed to induce mutual insurance among borrowers. Those who had been helped or who had repaid a little in the previous round were more likely to default strategically and repay a little again in the current round and those who paid large amounts were always the same individuals.

DVD-based distance-learning program for university entrance exams -- RCT experiments in rural Bangladesh

In contrast to the remarkable progress in developing countries in improving primary education, access to higher education in many countries remains limited, especially in rural areas where the quality of education is inadequate. We evaluate a DVD-based distance-learning program in rural Bangladesh, targeted at students aiming to take university entrance tests. We conducted two experiments: one to evaluate the effect of the distance-learning program and the second to determine the demand and price sensitivity. Our first experiment shows that the DVD-based distance-learning program has a considerable positive effect on the number of students passing entrance exams. This effect does not depend on cognitive scores, but does depend on non-cognitive attributes, indicating the importance of commitment, which is imposed through our program. In the second experiment, we offered a random subsidy to interested participants. The uptake decision is price-sensitive, although the price sensitivity is not correlated with students' past academic performance or their socio-economic status, suggesting that increasing the price should not disproportionately exclude poor students.