English, Article edition: Are the poor really more trustworthy? A micro-lending experiment Jaclyn D. Kropp; Calum G. Turvey; David R. Just; ...

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Are the poor really more trustworthy? A micro-lending experiment
Author
  • Jaclyn D. Kropp
  • Calum G. Turvey
  • David R. Just
  • Rong Kong
  • Pei Guo
Physical Description
  • article
Notes
  • Purpose – This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro-lending institutions grant loans to poor individuals countering well-known models of credit markets and credit rationing, such as those proposed by Stiglitz and Weiss. Micro-credit markets appear to be based on two conjectures: the poor are trustworthy, and their willingness to pay for credit is relatively high. Design/​methodology/​approach – The paper simulates trust-based lending in an experimental setting to determine whether the conjecture that the poor are trustworthy is plausible. By conducting the experiments in the USA, a wealthy developed country, and China, a developing country where formal micro-finance institutions have not established a visible presence, it is possible to test the conjecture and draw cross-cultural comparisons. Findings – The paper finds that while the absolute level of family income had no significant effect on repayment behavior, US borrowers that perceived themselves as having a family income that was relatively lower than other US households repaid at higher rates. Therefore, evidence was found that trustworthiness might be a function of perceived relative wealth or social status rather than the absolute level of wealth or income. Research limitations/​implications – The research results may be difficult to generalize because of the experimental approach and use of students as participants. Practical implications – The paper includes implications for the administration of micro-credit loans in China and other developing nations. Originality/​value – This paper experimentally tests a conjecture which appears to be the foundation of micro-credit markets.
  • China, Consumer credit, Loans, Social capital, Trust, United States of America
  • RePEc:eme:afrpps:v:69:y:2009:i:1:p:67-87
Language
  • English
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