Bourjade, Sylvain and Schindele, Ibolya (2011): Group lending with endogenous group size.
Download (122kB) | Preview
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:||22. Oct 2015 05:04|
Armendariz de Aghion, B., and C. Gollier, (2000), "Peer group formation in an adverse selection model," Economic Journal, 110, 632-643.
Besley, T., and S. Coate, (1995), "Group lending, repayment incentives and social collateral," Journal of Development Economics, 46, 1-18.
Besley, T., S. Coate, and G. Loury, (1993), "The economics of rotating savings and credit associations," American Economic Review, 83, 792-810.
Devereux, J., and R.P.H. Fishe, (1993), "An economic analysis of group lending programs in developing countries," The Developing Economies, 31, 195-228.
Ghatak, M., (2000), "Screening by the company you keep: joint liability lending and the peer selection effect," The Economic Journal, 110, 601-631.
Ghatak, M., and T. Guinnane, (1999), "The economics of lending with joint liability: theory and practice," Journal of Development Economics, 60, 195-228.
Laffont, J.J., and T.T. N'Guessan, (2000), "Group lending with adverse selection," European Economic Review, 44, 773-784.
Laffont, J.J., (2003), "Collusion and group lending with adverse selection," Journal of Development Economics, 70, 329-348.
Owusu, K.O., and W. Tetteh, (1982), "An experiment in agricultural credit: the smaller farmer group lending program in Ghana (1969-1980)," Savings and Development, 1, 67-83.
Wenner, M., (1995), "Group credit: a means to improve information transfer and loan repayment performance (1969-1980)," Journal of Development Studies, 32, 263-281.