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Group lending without joint liability
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de Quidt, Jonathan, Fetzer, Thiemo and Ghatak, Maitreesh (2016) Group lending without joint liability. Journal of Development Economics, 121 . pp. 217-236. doi:10.1016/j.jdeveco.2014.11.006 ISSN 0304-3878.
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Official URL: http://dx.doi.org/10.1016/j.jdeveco.2014.11.006
Abstract
This paper contrasts individual liability lending with and without groups to joint liability lending. We are motivated by an apparent shift away from the use of joint liability by microfinance institutions, combined with recent evidence that a) converting joint liability groups to individual liability groups did not affect repayment rates, and b) an intervention that increased social capital in individual liability borrowing groups led to improved repayment performance. First, we show that individual lending with or without groups may constitute a welfare improvement over joint liability, so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how the lender's lower transaction costs in group lending can encourage insurance by reducing the amount borrowers have to pay to bail one another out. Third, we discuss how group meetings might encourage insurance, either by increasing the incentive to invest in social capital, or because the time spent in meetings can facilitate setting up insurance arrangements. Finally, we perform a simple simulation exercise, evaluating quantitatively the welfare impacts of alternative forms of lending and how they relate to social capital.
Item Type: | Journal Article | ||||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||||
Library of Congress Subject Headings (LCSH): | Microfinance, Bank loans, Insurance | ||||||||||
Journal or Publication Title: | Journal of Development Economics | ||||||||||
Publisher: | Elsevier | ||||||||||
ISSN: | 0304-3878 | ||||||||||
Official Date: | July 2016 | ||||||||||
Dates: |
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Volume: | 121 | ||||||||||
Page Range: | pp. 217-236 | ||||||||||
DOI: | 10.1016/j.jdeveco.2014.11.006 | ||||||||||
Status: | Peer Reviewed | ||||||||||
Publication Status: | Published | ||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||
Date of first compliant deposit: | 27 October 2016 | ||||||||||
Date of first compliant Open Access: | 5 December 2016 | ||||||||||
Adapted As: |
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