Chapter 6: Harnessing Peer Mechanism to Ensure Financial Inclusion in India: A Case Study of Joint Liability Groups in India

This study aims to see how peer monitoring, selection, and enforcement might help formal financial institutions overcome moral hazards and adverse selection issues in working with disadvantaged borrowers in an agency relationship. This study aims to generate a grounded theory of how peer mechanism leads to the sustainability of self-help groups. According to the study, adverse selection in a joint liability group is mitigated by peer selection which is motivated by social ties and borrower risk type matching, and moral hazard is mitigated by peer monitoring and enforcement. A theory of peer mechanism is formulated using the three-staged grounded theory method of qualitative research. The data for the study are collected through semi-structured interviews with 68 leaders of handicraft-based self-help groups, members of state-level banking committees, and directors of self-help group promotion institutions across India. Through open, focussed, and theoretical coding, peer selection, peer monitoring, and peer enforcement emerge as the significant theoretical code that facilitates peer mechanism facilitates. The data for the study were collected and analysed simultaneously. The study deploys strategies of constant comparison, theoretical saturation, theoretical sampling, and theoretical sensitivity through literature to facilitate the research study. At each stage, the data were transcribed manually, and memos were prepared to capture the essence of the interviews. Until the development of theoretical coding, the coding and constant comparison process was carried out iteratively. This study indicates that in a joint liability group, people monitor each other due to homogeneity and information about other members.