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The individual micro-lending contract: is it a better design than joint-liability?: Evidence from Georgia

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  • Vigenina, Denotes
  • Kritikos, Alexander S.

Abstract

We analyze the incentive mechanism of individual micro-lending contracts and we compare its key factors with those of joint-liability loan contracts. Using our data set, we firstly show that in the individual contract there are three elements, the demand for non-conventional collateral, a screening procedure which combines new with traditional elements, and dynamic incentives in combination with the termination threat in case of default, which ensure high repayment rates of up to 100%. We further show that the joint-liability approach may lead to similar repayment rates, however based on a different incentive system. We reveal that the target group which can be efficiently served by either one of the two mechanisms is different. --

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 28 (2004)
Issue (Month): 2 (June)
Pages: 155-176

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Handle: RePEc:eee:ecosys:v:28:y:2004:i:2:p:155-176

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Cited by:
  1. Alexander S. Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2006. "Is there a Market for Micro-Lending in Industrialized Countries? - Evidence from Germany," Working Papers 0003, Gesellschaft für Arbeitsmarktaktivierung (GfA).
  2. Alexander Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2009. "Demand Side Analysis of Microlending Markets in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(5), pages 523-543, October.
  3. Li, Xia & Gan, Christopher & Hu, Baiding, 2011. "The welfare impact of microcredit on rural households in China," The Journal of Socio-Economics, Elsevier, vol. 40(4), pages 404-411, August.
  4. Alexander S. Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2008. "Demand Side Analysis of Microlending Markets in Industrialized Countries - Evidence from Germany -," Working Papers 014, Hanseatic University, Germany, Department of Economics.

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