Group Meeting Frequency and Borrowers' Repayment Performance in Microfinance: Evidence from a Quasi-natural Experiment in South Africa

Abstract

A quasi-natural experiment has been carried out at The Small Enterprise Foundation, a South African microfinance institution offering group lending with joint liability. In a pilot project, the frequency of meetings was reduced from fortnightly to monthly and the members of the groups were no more required to attend all the meetings but they could send a representative. After selecting a suitable control group using propensity score matching techniques, we ran difference-in-difference regressions to evaluate the impact of the policy changes. Estimates suggest that the pilot project increased loan repayment delays and decreased groups' deposits, but it had a negligible impact on groups' savings balances. Text mining techniques, applied to survey data, pointed towards the lack of trust within the groups whose members did not meet frequently outside the repayment meetings as one of the causes of the negative outcomes of the pilot experiment. We conclude that group meetings are an effective tool to stimulate the accumulation of social capital among microcredit borrowers.