Group-lending: Sequential financing, lender monitoring and joint liability
AbstractWe develop a simple model of group-lendingbased on peer monitoring and moral hazard. We find that, in the absence of sequential financing or lender monitoring, group-lending schemes may involve under-monitoring with the borrowers investing in undesirable projects. Moreover, under certain parameter configurations, group-lending schemes involving either sequential financing, or a combination of lender monitoringand joint liability are feasible. In fact, group-lending schemes with sequential financing may succeed even in the absence of joint liability, though the repayment rate will be lower. In the absence of joint liability, however, group-lending with lender monitoring is unlikely to be feasible.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 77 (2005)
Issue (Month): 2 (August)
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Other versions of this item:
- Prabal Roy Chowdhury, 2003. "Group-lending: Sequential financing, lender monitoring and joint liability," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-10, Indian Statistical Institute, New Delhi, India.
- G2 - Financial Economics - - Financial Institutions and Services
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
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