Proof from Italy
Utilizing data from a prominent microfinance that is italian we investigate the consequence of kinship relations between borrowers and cosigners on loan defaults. We address causality dilemmas making use of an instrumental variable constructed on the exogenous rule imposed because of the loan provider that will require individual guarantees for loans exceeding € 5000. Results reveal that the existence of closely associated cosigners has a tendency to reduce defaults. We realize that this is basically the consequence of a feasible mixed impact of both more powerful solidarity and much more effective emotional stress exerted by family relations in comparison to other types of cosigners.
Within the last several years, microfinance has gradually departed through the model that is traditional of financing and only a few types of specific credit, which depend on mechanisms apart from joint obligation in order to enforce payment.