Joint-liability lending: Does it raise repayment performance?

The aim of this paper is to examine whether joint-liability lending, a lending method often used by microfinance organizations, has positive impacts on repayment performance, as suggested in the theoretical literature. There has been an abundance of studies that investigate theoretically the impact of joint liability lending on repayment, yet the empirical evidence has been scarce due to the difficulties in obtaining reliable data. To test the joint-liability lending relationship, this paper uses a dataset for Thailand, collected by the Bank for Agriculture and Agricultural Cooperative in early 2000. As repayment performance is measured by a dummy variable, therefore a logit model is utilized to show the impact of joint liability lending on repayment. Results show that joint-liability lending may have positive impacts on repayment, but only under certain circumstances. Microfinance organisations should utilise this type of lending to improve repayment performance if suitable conditions can be obtained.