Bourjade, Sylvain and Schindele, Ibolya (2011): Group lending with endogenous group size.
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This paper focuses on the size of the borrower group in group lending. We show that, when social ties in a community enhance borrowers' incentives to exert effort, a profit-maximizing financier chooses a group of limited size. Borrowers that would be fundable under moral hazard but have insufficient social ties do not receive funding. The result arises because there is a trade-off between raising profits through increased group size and providing incentives for borrowers with less social ties. The result may explain why many micro-lending institutions and rural credit cooperatives lend to groups of small size.
|Item Type:||MPRA Paper|
|Original Title:||Group lending with endogenous group size|
|Keywords:||Group Lending; Moral Hazard; Social Capital|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Sylvain Bourjade|
|Date Deposited:||18. Nov 2011 00:33|
|Last Modified:||16. Feb 2013 08:33|
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