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A dynamic model of individual and group lending in developing countries

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Author Info

  • Ani L. Katchova
  • Mario J. Miranda
  • Claudio Gonzalez-Vega

Abstract

This paper examines the contract design problem of microfinance institutions seeking to maximize outreach to the poor while remaining financially sustainable. A dynamic model of group lending is developed that shows how optimal interest rates depend on information regarding moral hazard and adverse selection problems, correlated project risks, and strategic default. Relative to traditional static models, the results indicate a dynamic model better explains the current experience with individual and group lending in developing countries.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 66 (2006)
Issue (Month): 2 (September)
Pages: 251-265

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Handle: RePEc:eme:afrpps:v:66:y:2006:i:2:p:251-265

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Related research

Keywords: Adverse selection; Individual and joint liability contracts; Microlending; Moral hazard; Strategic default;

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Cited by:
  1. Amitrajeet A. Batabyal & Hamid Beladi, 2010. "A model of microfinance with adverse selection, loan default, and self-financing," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 55-65, May.
  2. Paal, Beatrix & Wiseman, Thomas, 2011. "Group insurance and lending with endogenous social collateral," Journal of Development Economics, Elsevier, vol. 94(1), pages 30-40, January.
  3. Lin He & Dongsheng Liao, 2012. "Credit NGOs' sustainability in rural financial market: a SWOT analysis on DAYBANG," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, vol. 28(3), pages 200-208, August.

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