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Charitable Giving or Signalling? Voluntary Contributions by Microcredit Borrowers in Pakistan

Mahmud, Mahreen, Wahhaj, Zaki (2019) Charitable Giving or Signalling? Voluntary Contributions by Microcredit Borrowers in Pakistan. Journal of Economic Behavior & Organization, 158 . pp. 394-415. ISSN 0167-2681. (doi:10.1016/j.jebo.2018.12.011) (KAR id:71240)


This paper investigates charitable giving by atypical donors in an unusual setting: the donors are microfinance recipients who provide charitable contributions to their lender, a non-profit institution. The institution provides interest-free loans but encourages its borrowers to make a voluntary contribution of any amount with the monthly instalment for principal repayment. Analysis of these monthly voluntary contributions suggests that the institution rewards borrowers for their contributions by giving them repeat loans. In particular, borrowers on joint liability loans in poorly performing groups make larger contributions using individual contributions to override a group-level signal. We develop a theory to show that this giving behaviour is consistent with borrowers signalling their level of success with the loan, but inconsistent with other explanations, including purely altruistic motives for giving. We argue that this mechanism of signalling success can provide the basis for a potential innovation in providing financial services in the presence of informational asymmetries.

Item Type: Article
DOI/Identification number: 10.1016/j.jebo.2018.12.011
Uncontrolled keywords: Microfinance, Charitable Giving, Signalling, Altruism, Non-Profit Organisations
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Zaki Wahhaj
Date Deposited: 17 Dec 2018 15:42 UTC
Last Modified: 04 Mar 2024 15:44 UTC
Resource URI: (The current URI for this page, for reference purposes)

University of Kent Author Information

Mahmud, Mahreen.

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Wahhaj, Zaki.

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