Trust in Lending: Social Capital and Joint Liability Seed Loans in Southern Zambia

SummaryThis paper identifies factors associated with high repayment performance by collectively liable groups of seed borrowers in Southern Zambia. The results suggest that some factors facilitating collective action within seed groups, such as their size, are associated with a higher repayment performance. In addition, community-based cognitive social capital, proxied here by generalized trust, is shown to be strongly associated with repayment performance. This suggests that attitudes and values shared by community members create an environment in which seed borrowers honor their engagements, although church participation and fear of witchcraft can weaken mutual monitoring of loan use and peer pressure for repayment.