Disciplining or protecting the poor? Avoiding the social costs of peer pressure in micro-credit schemes

Abstract

This paper utilizes case studies from Bangladesh and Sri Lanka to explore a disadvantage of group lending schemes: the unnecessary social costs of repayment pressure. The author argues that extending credit and meeting the needs of the poor need not be incompatible. The poor can be protected from socially damaging peer pressure lending practices via flexible repayment schedules, savings facilities and short-term, high-interest consumption loans. The analysis suggests protectional devices for poor borrowers, better staff performance indicators, and self-management of some resources by the poor.