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Mutual loan-guarantee societies in monopolistic credit markets with adverse selection

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  • Busetta, Giovanni
  • Zazzaro, Alberto

Abstract

In many countries, Mutual Loan-Guarantee Societies (MGSs) are assuming ever-increasing importance for small business lending. In this paper we provide a theory to rationalize the raison d’être of MGSs. The basic intuition is that the motivation for MGSs lies in the inefficiencies created by adverse selection, when borrowers do not have enough wealth to satisfy collateral requirements and induce self-selecting contracts. In this setting, we view MGSs as a wealth-pooling mechanism that allows otherwise inefficiently rationed borrowers to obtain credit.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 8 (2012)
Issue (Month): 1 ()
Pages: 15-24

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Handle: RePEc:eee:finsta:v:8:y:2012:i:1:p:15-24

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Web page: http://www.elsevier.com/locate/jfstabil

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Keywords: Mutual Loan-Guarantee Society; Group formation; Small business lending; Collateral;

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Citations

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Cited by:
  1. Paolo Emilio Mistrulli & Valerio Vacca & Gennaro Corbisiero & Silvia del Prete & Luciano Esposito & Marco Gallo & Mariano Graziano & Maurizio Lozzi & Vincenzo Maffione & Daniele Marangoni & Andrea Mig, 2011. "Mutual Guarantee Institutions (MGIs) and small business credit during the crisis," Questioni di Economia e Finanza (Occasional Papers) 105, Bank of Italy, Economic Research and International Relations Area.
  2. ONO Arito & UESUGI Iichiro & YASUDA Yukihiro, 2011. "Are Lending Relationships Beneficial or Harmful for Public Credit Guarantees? Evidence from Japan's Emergency Credit Guarantee Program," Discussion papers 11035, Research Institute of Economy, Trade and Industry (RIETI).
  3. Clara Cardone-Riportella & Antonio Trujillo-Ponce & Anahí Briozzo, 2013. "Analyzing the role of mutual guarantee societies on bank capital requirements for small and medium-sized enterprises," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(2), pages 142-159, June.

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