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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Does Solidarity Pay? The Case of the Small Enterprise Foundation, South Africa
Author:Reinke, Jens
Year:1998
Periodical:Development and Change
Volume:29
Issue:3
Period:July
Pages:553-576
Language:English
Geographic term:South Africa
Subjects:credit cooperatives
credit
Economics and Trade
Development and Technology
Link:https://doi.org/10.1111/1467-7660.00089
Abstract:Recent literature on group credit has stated that joint liability can be a means of addressing credit rationing by reducing both operating costs and defaults to acceptable levels. This paper argues that it has created an over-optimistic picture of the possibilities that joint liability could offer. Based on data from the Small Enterprise Foundation, a solidarity credit scheme operating in South Africa, the article argues that the costs of lending through solidarity groups are high. This is explained by the nature of the groups: groups are not a forum for contractual exchange, but are costly institutions built on social capital. The costs of group formation and interaction outweigh the benefits of high repayment rates associated with group control. Supposedly sustainable group-lenders often depend on large injections of subsidized loans or capital from donors. (Comment by Anton Simanowitz and response by Jens Reinke published in: Development and Change, vol. 30, no. 1, p. 177-181.) Bibliogr.
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