International Journal of Business and Economics Volume 22, No. 1 June, 2023

Impact of Peer Monitoring on Sustainability of The Self-Help Groups

Nishi Malhotra

Rajagiri College of Social Sciences, India

Abstract

This research paper aims to analyze the role of peer mechanisms and social contracting in ensuring access to loans and finance for marginalized poor through self-help groups. From the analysis of the results, we find that joint liability and social capital in a group lending scenario facilitate financial inclusion. A group that has joint liability through information sharing facilitates peer selection and assortative matching to ensure the formation of groups of only low-risk borrowers. As per the research study, joint liability groups or self-help groups help reduce the risk of adverse selection at the selection stage and moral hazard at the contract performance stage. This paper establishes that peer monitoring and peer selection in matching the risk type of the borrowers, particularly in the case of high-risk borrowers, help reduce the risk of adverse selection.

Keywords：Self-Help Group, Moral Hazard, Adverse Selection, Information Asymmetry

JEL Classifications：G21, G20

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