Increasing solvency by moderating social capital: a study on group lending model from community empowerment trust fund – Indonesia
Abstract
The Community Empowerment Trust Fund is a revolving fund belonging to the community originating from the former Sub-District Development Program and the National Program for Independent Rural Community Empowerment in Indonesia which ended in 2014. Community institutions then manage the Community Empowerment Trust Fund to fund community economic activities in the form of group loans. The group lending model is a financial inclusion that reaches the poor who do not have collateral. These funds have been managed well with the group loan model. However, the success of managing these funds cannot be separated from the social capital built between group members and between the group and the fund management unit. This study aims to examine the management of the borrower group – group internal setting; group loan appraisal and group loan control – and social capital on repayment performance. The study results prove that group lending appraisal, group lending control, and social capital positively impact repayment capacity. The research finding is social capital strengthens group lending control dynamics to increase repayment capacity. Another finding explains that women’s loan groups have a higher collectability rate in repayment of loans compared to productive economic business groups whose members are both male and female.
Keyword : group lending model, social capital, repayment capacity
How to Cite
Indriani, E., Irawan, N., Hartawan, & Khristiana, Y. (2023). Increasing solvency by moderating social capital: a study on group lending model from community empowerment trust fund – Indonesia. Business: Theory and Practice, 24(2), 312–324. https://doi.org/10.3846/btp.2023.16735
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Dorfleitner, G., & Oswald, E.-M. (2016). Repayment behavior in peer-to-peer microfinancing: Empirical evidence from Kiva. Review of Financial Economics, 30(1), 45–59. https://doi.org/10.1016/j.rfe.2016.05.005
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Ghatak, M. (1999). Group lending, local information and peer selection. Journal of Development Economics, 60(1), 27–50. https://doi.org/10.1016/S0304-3878(99)00035-8
Ghatak, M., & Guinnane, T. W. (1999). The economics of lending with joint liability: Theory and practice. Journal of Development Economics, 60(1), 195–228. https://doi.org/10.1016/S0304-3878(99)00041-3
Grootaert, C. (1998). Social capital: The missing Link? (Social Capital Initiative Working Paper, 3). The World Bank Social Development Family Environmentally and Socially Sustainable Development Network.
Hasan, M. K., & Renteria-Guerrero, L. (1997). The experience of the Grameen Bank of Bangladesh in community development. International Journal of Social Economics, 24(12), 1488–1523. https://doi.org/10.1108/03068299710193949
Jumpah, E. T., Tetteh, E. K., & Adams, A. (2018). Microcredit repayment among smallholder farmers: What microfinance institutions need to know. Asian Journal of Agriculture and Rural Development, 8(2), 74–91. https://doi.org/10.18488/journal.1005/2018.8.2/1005.2.74.91
Kasmir. (2015). Manajemen Perbankan (13th ed.). Rajawali Pers.
Lawrence, P. R., & Lorsch, J. W. (1967). Differentiation and integration in complex organizations. Administrative Science Quarterly, 12(1), 1–47. https://doi.org/10.2307/2391211
Nanayakkara, G., & Stewart, J. (2015). Gender and other repayment determinants of microfinancing in Indonesia and Sri Lanka. International Journal of Social Economics, 42(4), 322–339. https://doi.org/10.1108/IJSE-10-2013-0216
Narayan, D. (1999). Bonds and bridges: Social capital and poverty (Policy Research Working Paper, 2167). http://documents.worldbank.org/curated/en/989601468766526606/pdf/multi-page.pdf
Okello Candiya Bongomin, G., Mpeera Ntayi, J., Munene, J. C., & Malinga Akol, C. (2017). Financial intermediation and financial inclusion of poor households: Mediating role of social networks in rural Uganda. Cogent Economics and Finance, 5(1), 1362184. https://doi.org/10.1080/23322039.2017.1362184
Putnam, R. D. (1993). The prosperous community: Social capital and public life. The American Prospect, 4(13), 35–42.
Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of Democracy, 6(1), 65–78. https://doi.org/10.1353/jod.1995.0002
Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. In CSCW’00: Proceedings of the 2000 ACM Conference on Computer supported cooperative work. ACM Digital Library.
Rao, B. S. (2001). East Asian economies: The miracle, a crisis and the future. McGraw-Hill Co.
Rathore, B. S. (2015). Social capital: Does it matter in a microfinance contract? International Journal of Social Economics, 42(11), 1035–1046. https://doi.org/10.1108/IJSE-03-2014-0057
Rathore, B. S. (2017). Joint liability in a classic microfinance contract: Review of theory and empirics. Studies in Economics and Finance, 34(2), 213–227. https://doi.org/10.1108/SEF-02-2016-0040
Robinson, M. S. (2002). The microfinance revolution: Vol. 2. Lessons from Indonesia. World Bank. https://doi.org/10.1596/0-8213-4953-8
Sanrego, Y., & Antonio, M. (2015). The effect of social capital on loan repayment behavior of the poor (A study on Group Lending Model (GLM) application in Islamic microfinance institution). Journal of Indonesian Economy and Business, 28(2), 188–210.
Schurmann, A. T., & Johnston, H. B. (2009). The group-lending model and social closure: Microcredit, exclusion, and health in Bangladesh. Journal of Health, Population and Nutrition, 27(4), 518–527. https://doi.org/10.3329/jhpn.v27i4.3398
Shahriar, A. Z. M., Unda, L. A., & Alam, Q. (2020). Gender differences in the repayment of microcredit: The mediating role of trustworthiness. Journal of Banking and Finance, 110, 105685. https://doi.org/10.1016/j.jbankfin.2019.105685
Sharma, M., & Zeller, M. (1997). Repayment performance in group-based credit programs in Bangladesh: An empirical analysis. World Development, 25(10), 1731–1742. https://doi.org/10.1016/S0305-750X(97)00063-6
Srinivas, H. (2015). Microfinance – Credit Lending Models. GDRC Research Output E-059. Kobe, Japan. https://www.gdrc.org/icm/model/model-fulldoc.html
Stiglitz, J. E. (1990). Peer monitoring and credit markets. The World Bank Economic Review, 4(3), 351–366. https://doi.org/10.1093/wber/4.3.351
van Bastelaer, T., & Leathers, H. (2006). Trust in lending: Social capital and joint liability seed loans in Southern Zambia. World Development, 34(10), 1788–1807. https://doi.org/10.1016/j.worlddev.2006.02.007
Varian, H. R. (1990). Monitoring agents with other agents. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift Für Die Gesamte Staatswissenschaft, 146(1), 153–174. http://www.jstor.org/stable/40751313
Williamson, O. E. (1993). Calculativeness, trust, and economic organization. Journal of Law and Economics, 36(1), 453–486. https://doi.org/10.1086/467284
Woolcock, M., & Narayan, D. (2000). Social capital: Implications for development theory, research, and policy. World Bank Research Observer, 15(2), 225–249. https://doi.org/10.1093/wbro/15.2.225
Zeller, M. (1998). Determinants of repayment performance in credit groups: The role of program design, intragroup, risk pooling, and social cohesion. Economic Development and Cultural Change, 46(3), 599–620. https://doi.org/10.1086/452360
Zhang, Q., & Izumida, Y. (2013). Determinants of repayment performance of group lending in China: Evidence from rural credit cooperatives’ program in Guizhou province. China Agricultural Economic Review, 5(3), 328–341. https://doi.org/10.1108/CAER-08-2012-0083
Zhang, T., Liu, H., & Liang, P. (2020). Social trust formation and credit accessibility-evidence from rural households in China. Sustainability, 12(2), 667. https://doi.org/10.3390/su12020667
Al-Azzam, M., Hill, C., R., & Sarangi, S. (2012). Repayment performance in group lending: Evidence from Jordan. Journal of Development Economics, 97(2), 404–414. https://doi.org/10.1016/j.jdeveco.2011.06.006
Al-Azzam, M., Parmeter, C. F., & Sarangi, S. (2020). On the complex relationship between different aspects of social capital and group loan repayment. Economic Modelling, 90, 92–107. https://doi.org/10.1016/j.econmod.2020.04.027
Ben Soltane, B. (2008). Determinants of successful group loan repayment: An application to Tunisia. Journal of Sustainable Development in Africa, 10(2), 766–800.
Bhandari, H., & Yasunobu, K. (2009). What is social capital? A comprehensive review of the concept. Asian Journal of Social Science, 37(3), 480–510. https://doi.org/10.1163/156853109X436847
Brandt, L., Epifanova, N., & Klepikova, T. (1998). The Russia microfinance project lending methodology module. The Russia microfinance project. https://microfinancearena.com/review/lending-methodology-module/
Brown, A., Garguilo, S., & Mehta, K. (2011). The relentless pursuit of financial capital for micro-enterprises: Importance of trust and social capital. International Journal for Service Learning in Engineering, Humanitarian Engineering and Social Entrepreneurship, 6(2), 78–97. https://doi.org/10.24908/ijsle.v6i2.3660
Cassar, A., Crowley, L., & Wydick, B. (2007). The effect of social capital on group loan repayment: Evidence from field experiments. Economic Journal, 117(517), F85–F106. https://doi.org/10.1111/j.1468-0297.2007.02016.x
Casson, M., & Godley, A. (2000). Cultural factors in economic growth. In M. Casson & A. Godley (Eds.), Cultural factors in economic growth (pp. 1–43). Springer. https://doi.org/10.1007/978-3-642-57223-4_1
Chowdhury, P. R. (2005). Group-lending: Sequential financing, lender monitoring and joint liability. Journal of Development Economics, 77(2), 415–439. https://doi.org/10.1016/j.jdeveco.2004.05.005
Coleman, J. (1988). Social capital in the creation of human development. American Journal of Sociology, 94, 95–120. https://doi.org/10.1086/228943
Conning, J., & Udry, C. (2005). Rural financial markets in developing countries. Econpapers, No. 28458. https://econpapers.repec.org/RePEc:ags:yaleeg:28458
Cull, R., Demirgüc-Kunt, A., & Morduch, J. (2007). Financial performance and outreach: A global analysis of leading microbanks. The Economic Journal, 117(517), F107-F133. https://doi.org/10.1111/j.1468-0297.2007.02017.x
Dasgupta, P. (2002). Social capital and economic performance: Analytics. University of Cambridge and Beijer International Institute of Ecological Economics, Stockholm.
Dorfleitner, G., & Oswald, E.-M. (2016). Repayment behavior in peer-to-peer microfinancing: Empirical evidence from Kiva. Review of Financial Economics, 30(1), 45–59. https://doi.org/10.1016/j.rfe.2016.05.005
Dufhues, T., Buchenrieder, G., Quoc, H. D., & Munkung, N. (2011). Social capital and loan repayment performance in Southeast Asia. Journal of Socio-Economics, 40(5), 679–691. https://doi.org/10.1016/j.socec.2011.05.007
Feder, G., & Huppi, M. (1990). The role of groups and credit cooperatives in rural lending. World Bank Research Observer, 5(2), 187–204. https://doi.org/10.1093/wbro/5.2.187
Fukuyama, F. (2000). Social capital and civil society (IMF Working Papers, 074). International Monetary Fund. https://doi.org/10.5089/9781451849585.001
Ghatak, M. (1999). Group lending, local information and peer selection. Journal of Development Economics, 60(1), 27–50. https://doi.org/10.1016/S0304-3878(99)00035-8
Ghatak, M., & Guinnane, T. W. (1999). The economics of lending with joint liability: Theory and practice. Journal of Development Economics, 60(1), 195–228. https://doi.org/10.1016/S0304-3878(99)00041-3
Grootaert, C. (1998). Social capital: The missing Link? (Social Capital Initiative Working Paper, 3). The World Bank Social Development Family Environmentally and Socially Sustainable Development Network.
Hasan, M. K., & Renteria-Guerrero, L. (1997). The experience of the Grameen Bank of Bangladesh in community development. International Journal of Social Economics, 24(12), 1488–1523. https://doi.org/10.1108/03068299710193949
Jumpah, E. T., Tetteh, E. K., & Adams, A. (2018). Microcredit repayment among smallholder farmers: What microfinance institutions need to know. Asian Journal of Agriculture and Rural Development, 8(2), 74–91. https://doi.org/10.18488/journal.1005/2018.8.2/1005.2.74.91
Kasmir. (2015). Manajemen Perbankan (13th ed.). Rajawali Pers.
Lawrence, P. R., & Lorsch, J. W. (1967). Differentiation and integration in complex organizations. Administrative Science Quarterly, 12(1), 1–47. https://doi.org/10.2307/2391211
Nanayakkara, G., & Stewart, J. (2015). Gender and other repayment determinants of microfinancing in Indonesia and Sri Lanka. International Journal of Social Economics, 42(4), 322–339. https://doi.org/10.1108/IJSE-10-2013-0216
Narayan, D. (1999). Bonds and bridges: Social capital and poverty (Policy Research Working Paper, 2167). http://documents.worldbank.org/curated/en/989601468766526606/pdf/multi-page.pdf
Okello Candiya Bongomin, G., Mpeera Ntayi, J., Munene, J. C., & Malinga Akol, C. (2017). Financial intermediation and financial inclusion of poor households: Mediating role of social networks in rural Uganda. Cogent Economics and Finance, 5(1), 1362184. https://doi.org/10.1080/23322039.2017.1362184
Putnam, R. D. (1993). The prosperous community: Social capital and public life. The American Prospect, 4(13), 35–42.
Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of Democracy, 6(1), 65–78. https://doi.org/10.1353/jod.1995.0002
Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. In CSCW’00: Proceedings of the 2000 ACM Conference on Computer supported cooperative work. ACM Digital Library.
Rao, B. S. (2001). East Asian economies: The miracle, a crisis and the future. McGraw-Hill Co.
Rathore, B. S. (2015). Social capital: Does it matter in a microfinance contract? International Journal of Social Economics, 42(11), 1035–1046. https://doi.org/10.1108/IJSE-03-2014-0057
Rathore, B. S. (2017). Joint liability in a classic microfinance contract: Review of theory and empirics. Studies in Economics and Finance, 34(2), 213–227. https://doi.org/10.1108/SEF-02-2016-0040
Robinson, M. S. (2002). The microfinance revolution: Vol. 2. Lessons from Indonesia. World Bank. https://doi.org/10.1596/0-8213-4953-8
Sanrego, Y., & Antonio, M. (2015). The effect of social capital on loan repayment behavior of the poor (A study on Group Lending Model (GLM) application in Islamic microfinance institution). Journal of Indonesian Economy and Business, 28(2), 188–210.
Schurmann, A. T., & Johnston, H. B. (2009). The group-lending model and social closure: Microcredit, exclusion, and health in Bangladesh. Journal of Health, Population and Nutrition, 27(4), 518–527. https://doi.org/10.3329/jhpn.v27i4.3398
Shahriar, A. Z. M., Unda, L. A., & Alam, Q. (2020). Gender differences in the repayment of microcredit: The mediating role of trustworthiness. Journal of Banking and Finance, 110, 105685. https://doi.org/10.1016/j.jbankfin.2019.105685
Sharma, M., & Zeller, M. (1997). Repayment performance in group-based credit programs in Bangladesh: An empirical analysis. World Development, 25(10), 1731–1742. https://doi.org/10.1016/S0305-750X(97)00063-6
Srinivas, H. (2015). Microfinance – Credit Lending Models. GDRC Research Output E-059. Kobe, Japan. https://www.gdrc.org/icm/model/model-fulldoc.html
Stiglitz, J. E. (1990). Peer monitoring and credit markets. The World Bank Economic Review, 4(3), 351–366. https://doi.org/10.1093/wber/4.3.351
van Bastelaer, T., & Leathers, H. (2006). Trust in lending: Social capital and joint liability seed loans in Southern Zambia. World Development, 34(10), 1788–1807. https://doi.org/10.1016/j.worlddev.2006.02.007
Varian, H. R. (1990). Monitoring agents with other agents. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift Für Die Gesamte Staatswissenschaft, 146(1), 153–174. http://www.jstor.org/stable/40751313
Williamson, O. E. (1993). Calculativeness, trust, and economic organization. Journal of Law and Economics, 36(1), 453–486. https://doi.org/10.1086/467284
Woolcock, M., & Narayan, D. (2000). Social capital: Implications for development theory, research, and policy. World Bank Research Observer, 15(2), 225–249. https://doi.org/10.1093/wbro/15.2.225
Zeller, M. (1998). Determinants of repayment performance in credit groups: The role of program design, intragroup, risk pooling, and social cohesion. Economic Development and Cultural Change, 46(3), 599–620. https://doi.org/10.1086/452360
Zhang, Q., & Izumida, Y. (2013). Determinants of repayment performance of group lending in China: Evidence from rural credit cooperatives’ program in Guizhou province. China Agricultural Economic Review, 5(3), 328–341. https://doi.org/10.1108/CAER-08-2012-0083
Zhang, T., Liu, H., & Liang, P. (2020). Social trust formation and credit accessibility-evidence from rural households in China. Sustainability, 12(2), 667. https://doi.org/10.3390/su12020667