8/4/2019 Sharia File 5
1/23
Prepared by TAZKIA
The Effect of Social Capital on Loan Repayment
Behavior: A Study on Group Lending Model(GLM) Application in Islamic Microfinance
Institution, Bogor
Yulizar D. Sanrego Nz
Lembaga Penelitian & Pemberdayaan Masyarakat
Forum Riset Perbankan Syariah Bank Indonesia
Universitas Muhamadiyah Yogyakarta (UMY)
9 Desember 2010 M/ 3 Muharam 1432 H
1
8/4/2019 Sharia File 5
2/23
8/4/2019 Sharia File 5
3/23
Prepared by TAZKIA
RESEARCH BACKGROUND
It is well established in finance theory that credit markets characterized with
high asymmetric information, notably, the existence of moral hazard andadverse selection problems, leads to severe distortion and sometimescomplete collapse of the formal credit market.
Financial contracts will not be written under this condition. Hence, goodsand services will be under-produced and under-consumed. The contracts
between borrower and lender will only be honored if the element of trustexists in such transactions.
Commercial banks distrust poor people for credit because they cannotenforce repayments without a presence of loan/physical collateral.
Informational problems arise as banks fail to distinguish 'good' among 'bad'borrowers, due to the poor lacking accounting report of their business
8/4/2019 Sharia File 5
4/23
Prepared by TAZKIA
RESEARCH BACKGROUND
It has been recognized, however, that non-market institutions play the role in
overcoming such informational and enforcement problems.
In relation to the fulfillment of collateral, in group lending methods such as
interpersonal relations and cooperation among group members can become
'social collateral', substituting the lack of poor people to physical collateral.
8/4/2019 Sharia File 5
5/23
Prepared by TAZKIA
RESEARCH BACKGROUND
IMFiwithGroupLendingModel
(GLM)
SocialCapitalBuilding
(SCB)
SCB=BeyondMicrocredit=
EMPOWERMENT
FINANCIALINSTITUTION(SupplySide/LENDER)
SCB is functioning as PhysicalCollateral. It is a TRUST for
LENDER
INDIVIDU
(DemandSide/BORROWER) SCB having dual functions:
1 Physical Collateral
2 AffectRepaymentRate
EQUILIBRIUM
8/4/2019 Sharia File 5
6/23Prepared by TAZKIA
1) How social capital features can be implemented within the
community group.
2) How the attainment of social capital through group lending
model (GLM) in the Islamic microfinance institution would
lead to the soundness of microfinance performance
particularly in the loan repayment behavior of Ikhtiar
Program participants.
PROBLEM STATEMENTS
8/4/2019 Sharia File 5
7/23Prepared by TAZKIA
THEORETICAL FRAMEWORK & PREV RESEARCH
8/4/2019 Sharia File 5
8/23Prepared by TAZKIA
Economic-Psychology Theory of Reasoned Action (TRA)
Theory of Planned Behavior (TPB)
THEORETICAL FRAMEWORK
8/4/2019 Sharia File 5
9/23Prepared by TAZKIA
Background
factors
Individual
Personality, Mood,
Emotion,
Intelligence,
Values,
Stereotypes,
General Attitudes,Experience
Social
Education, Age,
Gender, Income,
Religion, Race,Ethnicity, Culture
Information
Knowledge,
Media,
Intervention
BehaviouralBeliefs
Attitudetoward
Behaviour
NormativeBeliefs
SubjectiveNorm
ControlBeliefs
PerceivedBehaviouralControl
Intention Behaviour
ActualBehaviouralControl
Theory of Planned Behavior
8/4/2019 Sharia File 5
10/23Prepared by TAZKIA
1) Those who view the relational aspects of socialcapital as key to the performance of group lending.
2) Those who view the informational aspects of social
capital as key to the performance of group lending;and,
3) Those who view the merits of group lending
(relative to individual lending) solely through its
innate properties as a joint-liability contract, where
social capital plays little or no role
PREVIOUS RESEARCH
8/4/2019 Sharia File 5
11/23Prepared by TAZKIA
NO NAME TITLE RESEARCH FINDINGS
First category those that view the RELATIONAL ASPECTS of social capital as key to the performance of group lending.
1 Sagrario L. Floro and Pan A.
Yotopolous
Informal Credit Markets and the New
Institutional Economics: The Case of Philippine
Agriculture (Boulder: Westview Press, 1990)
Demonstrate that where social ties are
strong, group lending can both improve loan
repayment and relax credit constraints
2 T imothy Besley and Stephen
Coate
"Group Lending, Repayment Incentives and
Social Collateral," Journal of DevelopmentEconomics, Vol. 46, No (1995): p. 1-18
Argue that without the potential for social
sanctions, group lending may offer little ifany advantage over individual lending.
However, given that sanctions are
sufficiently strong, group lending in their
model is able to curtail the moral hazard
associated with loan repayment
3 Stiglitz, Besley, Banerjee and
Guinnane and Armendriz de
Aghion
Joseph E. Stiglitz, "Peer Monitoring and Credit
Markets," The World Bank Economic Review,
Vol. 4, No. 3 (September 1990). Abhijit V.
Banerjee, Timothy Besley, and Timothy W.
Guinnane, "The Neighbors Keeper: The Design
of a Credit Cooperative with Theory and a Test,"
The Quarterly Journal of Economics, Vol. 109,
No. 2 (May 1994). Beatriz Armendriz de
Aghion, "On the Design of a Credit Agreement
with Peer Monitoring,"Journal of Development
Economics, Vol. 60, No.1 (1999)
Social sanctions, combined with peer
monitoring also play a role though in
focusing on peer monitoring, social
sanctions are typically assumed to be
exogenous
4 Bruce Wydick "Group Lending under Dynamic Incentives as a
Borrower Discipline Device," Review of
Development Economics, Vol. 5, No. 3 (200): p.
1-14
sanctions in the form of group expulsion are
endogenous in that they represent a credible
threat that comprises part of a perfect
Bayesian equilibrium punishment strategy
8/4/2019 Sharia File 5
12/23Prepared by TAZKIA
Second category those that view the INFO RMATIONAL ASPECTS of social capital as key to the performance of group lending
5 Eric Van T assel and
Maitreesh Ghatak.
Eric Van T assel, "Group Lending under
Asymmetric Information,"Journal of
Development Economics, Vol. 60, No. 1
(1999): p. 3-25. Maitreesh Ghatak, "Group
Lending, Local Information and Peer
Selection,"Journal of Development
Economics, Vol. 60, No. 1 (1999): p. 27-
50.
Demonstrate that the borrower self-selection process used in
most group lending schemes improves repayment rates
through mitigating adverse selection in credit markets. If
borrowers have clear information over the riskiness of one
another's projects, t hey sort themselves into homogeneous
groups through an assort ative matching process
Third category those that view the merits of group lending (relative to i ndividual lending) solely through its innate properties as
a joint-liability contract, where social capital plays little or no role
6 Armendriz de
Aghion and Gollier
"Peer Group Format ion in an Adverse
Selection Model," The Economic Journal,
Vol. 110 (July 2000): p. 632-643
They show that , in a pool of safe and risky borrowers,
if the higher return realized by a risky borrower in the good
state of nature is (uniquely) sufficient to cover for a
defaulting group member, then the group lending cont ract
can reduce the equilibrium interest rate and induce higher
repayment rates relative to individual lending
8/4/2019 Sharia File 5
13/23Prepared by TAZKIA
RESEARCH FRAMEWORK & HYPOTHESIS
8/4/2019 Sharia File 5
14/23Prepared by TAZKIA
RESEARCH FRAMEWORK
IKHTIAR PROGRAM
XI. Member's Role
X2. Progran Benefits
X3. Field Officer
X4. Financial Service
X5.Other Member's Role
FAMILYECONOMYY21.TotalIncomeY22.Income Source Y23.DependantY24.Expenditure
INDIVIDUALCHARACTERISTIC
YI. AgeY2 .EducationY3 .ExperienceY4 .PeriodofClient
REPAYMENT BEHAVIOR
Y31. Discipline
Y32.TrustY33. Burden
Y34. Loan TurnY35. Eco Increase
SUBJECTIVE NO RM
Y41. Husband
Y42. Parent
Y43. Son
Y44. Other Client
Y45. NeighborY46. Local Gov
Y47. Field Officer
RELIGIOUSNORMY51.Thrift/simplicityY52.PayingDebtY.53.Delay/In DueTimeY.54.BadIntentionY.55.Trusteeship
PERCEIVEDABLETOPAYY61.Routine PaymentY62.Notin Arrear
INTENTIONTOPAYY71.FollowOthersY72.AdhertoReligionY73.FulfillNorm/System
REPAYMENTBEHAVIORY31.DevelopmentY32.Frequency
8/4/2019 Sharia File 5
15/23Prepared by TAZKIA
1. Loan repayment behavior of Ikhtiar Programparticipant (Y) is influenced by the attainment of
social capital which is embedded within their attitude
of repaying loan, subjective norm, religious norm,perceived behavior, individual characteristic as well
as their family economic background.
2. Ikhtiar Program (X) itself has an effect to the groupmembers loan repayment behavior.
RESEARCH HYPOTHESIS
8/4/2019 Sharia File 5
16/23Prepared by TAZKIA
RESEARCH METHODOLOGY
In order to grab all the information from the primarydata (latent variables) and to have valid and robust
answer for the previous problem statement, this
research is employing parametric-structural equationModel (SEM) using LISREL 8.51.
8/4/2019 Sharia File 5
17/23Prepared by TAZKIA
DISCUSSION (1)
(
1)EARLY
SPECIFICA
TION
MO
DEL
8/4/2019 Sharia File 5
18/23Prepared by TAZKIA
2. The assessment to the offending estimates problem.3. The evaluation of SEM overall model fit.
4. Respecification Model.
DISCUSSION (2)
8/4/2019 Sharia File 5
19/23Prepared by TAZKIA
DISCUSSION (3)
(4
)RESPE
CIFICAT
ION
MODEL
8/4/2019 Sharia File 5
20/23Prepared by TAZKIA
CONCLUSION & RECOMMENDATION
8/4/2019 Sharia File 5
21/23Prepared by TAZKIA
1) This research concludes that loan repayment behavior of Ikhtiar Program
participant is very much affected by the existing social capital whichembedded in Ikhtiar Program, Repayment Behavior (Attitude) and
Intention to Repay the Loan. The role of Ikhtiar Program in this context is
affirmative in the process of capacity building of the entire participant
program in the form of attitude, subjective norm, religious norm andothers.
2) Such that, this research is, somehow, is similar to those that view the
relational aspects of social capital as key to the performance of group
lending and those that view the informational aspects of social capital as
key to the performance of group lending.
CONCLUSION
8/4/2019 Sharia File 5
22/23Prepared by TAZKIA
It is urged for Islamic Banks to have a partnership with those
IMFIs which apply group lending model (community based)
to run their linkage program.
There should be another research that having a wider
coverage of research, particularly in the different area or
region so that the finding will have a comprehensive
comparison analysis in term of community economicbehavior.
RECOMMENDATION
8/4/2019 Sharia File 5
23/23
WASSALAMUALAIKUM
Top Related