Relative Returns: Family Ties and Loan Progression in Mexican Microfinance

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  In Refereed Roundtable (90 minute): Table 25: Returns to Network Position

Abstract

Microfinance institutions organize borrowers into lending groups whose members collectively guarantee one another's loans, substituting social relationships for physical collateral. Many institutions permit or encourage family co-membership on the premise that kinship strengthens the monitoring and mutual support on which group lending depends. Yet family ties are distinct from other social connections in ways that matter for entrepreneurial trajectories. Kinship obligations are diffuse and open-ended, embedding business activity in household economic structures that govern who controls resources and whose claims take priority. This paper asks whether family co-membership in lending groups is associated with women's loan progression across successive microfinance borrowing cycles.
Progressive lending, in which loan sizes increase conditional on past repayment, is the primary mechanism through which microfinance is theorized to enable economic mobility. Yet most microenterprises in developing countries never grow beyond their initial size, and graduation rates from small to larger loans remain low. Research on microfinance groups has examined how social ties relate to repayment, but repayment and progression are fundamentally different outcomes. A borrower who repays reliably but never advances to larger loans is managing debt, not building a growing enterprise. Whether family co-membership helps or hinders this progression is theoretically ambiguous. Relatives can provide information, emergency support, and encouragement that facilitate advancement. But kinship networks also generate redistributive pressures that may intensify as a borrower's loan amounts grow large enough to be worth claiming. These dynamics operate with particular force for women, whose microenterprises are more likely to operate from the home and are more deeply embedded in household economic arrangements, giving family members greater visibility into business activities and greater opportunity to make claims on the proceeds.
I analyze administrative data from a Mexican microfinance institution covering 15,434 borrowers in 7,616 lending groups from 2021 to 2025, identifying family relationships using two independent methods and examining heterogeneity across lending cycles, group gender composition, and kinship type.

Author

• Majo Ágreda, Cornell University