Optimism Bias, Over-Indebtedness and Default Risk in Informal Lending Groups: Evidence from South Sudan

Informal lending groups are often celebrated as locally embedded answers to financial exclusion, but their developmental value depends on whether borrowing remains productive and repayable. Objective: This article examines optimism bias, over-indebtedness and default risk in Community Group Saving and Lending (CGSL) groups in rural South Sudan. The study uses a mixed-methods article conversion design based on 85 sampled respondents, 81 valid questionnaire returns and 17 qualitative interviews. Methods: Descriptive statistics, mean-score interpretation, chi-square tests, logistic regression and constructed behavioural-risk indices were used to interpret the relationship between credit access, investment optimism and repayment vulnerability. Results: Inferential findings further showed that CGSL participation was significantly associated with productivity indicators (chi-square = 15.92, p = 0.0001), while access to CGSL credit significantly increased the likelihood of investment in modern agricultural technologies (beta = 1.9459, p = 0.026; odds ratio approximately 7.00). These results confirm that credit matters, but the article argues that credit expansion without repayment realism can convert investment optimism into over-indebtedness. Conclusion: Respondents strongly agreed that rural finance makes a difference to productivity (overall mean = 4.58), that working capital scarcity constrains investment (mean = 4.68), that technology is capital intensive (mean = 4.29), and that credit is a prerequisite for technology adoption (mean = 4.02).