Written by Gustavo A. Barboza and Humberto Barreto, published April 2006 in Contemporary Economic Policy Vol. 24, No. 2, 16 pages available at: http://econpapers.repec.org/article/oupcoecpo/v_3A24_3Ay_3A2006_3Ai_3A2_3Ap_3A316-331.htm
This paper aims to investigate “peer mentoring”, or “learning by association” through traditional microfinance borrowing groups whereby a lump sum is delegated to a whole group instead of individuals. The authors examine this lending structure in the microfinance process and the relationship between peer mentoring and client repayments. The authors hypothesize that stronger support through “peer mentoring” groups will enable weaker members of the group to advance and succeed. They consider that poor people do not just lack financial access, but also skills and discipline to be able to manage their money. Peer mentoring is desired to provide support and a level of transparency.
The study uses data from ALSol a non-governmental organization established in 1999 in Mexico. They explain AlSol’s methodology, loan structure and formation of groups. The authors present AlSol’s client’s economic activities and commit the bulk of the paper to creating various equations to measure how well repayments were made (325). While the paper hypothesizes that group mentoring will be successful, the authors do concede that the group model could encourage members to drop out if they see a fellow member default and do not want to carry the extra burden of this person.
Yet, the results show a positive relationship between repayment rates and peer mentoring, which supports that when there is both a strong member and weak member in a group, the weak group member performs more favorably under the influence of a peer mentor. Therefore, the author’s conclude, based on the AlSol model, peer mentoring can be an encouraging factor in client repayment.
By Sarah Knapp, Research Assistant
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