Loan repayment among group borrowers in Tanzania: the role of relationship quality

Abstract

Abstract Although the social capital, in terms of stronger interpersonal relationships between group borrowers, has been found to exert a positive impact on group loan repayment, there is no existing research that has endeavored to study the influence of relationship quality between individual group borrowers on group loan repayment. Therefore, this study seeks to understand the impact of relationship quality and its dimensions on group loan repayment using data gathered from a survey of 450 joint liability borrowers. The data was analyzed using structural equation modeling (SEM). Findings indicate that relationship quality and its dimensions do not influence group loan repayment, suggesting that follow-up loans provide incentives to repay. Commitment, trust, and satisfaction are affirmed as dimensions of relationship quality between individual group members, with trust exerting the strongest influence. Potential group borrowers need to self-select and screen each other based on relationship quality factors, particularly trust, to reduce opportunistic behavior.

Keywords

• Relationship quality
• Group loan repayment
• Joint liability lending