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Is it better to be mixed in group lending?

Reito, Francesco (2016): Is it better to be mixed in group lending?

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Abstract

This paper shows that, in a group-lending environment characterized by positive assortative matching, a microfinance institution can achieve a Pareto improvement by promoting negative matching among borrowers. Some new implications are: i) borrowers may be better off under mixed groups; ii) a heterogeneous group lending equilibrium is possible even when individual or homogeneous group equilibria do not exist.

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