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Is Grameen Lending Efficient?

Author

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  • Ashok S. Rai
  • Tomas Sjostrom

Abstract

Many believe that a key innovation by the Grameen Bank is to encourage its borrowers to help each other in hard times. To analyze this we study a novel mechanism design problem where borrowers share information about each other, but their limited side contracting ability prevents them from writing complete insurance contracts. We derive a lending mechanism which efficiently induces mutual insurance. It is necessary for borrowers to submit reports about each other to achieve efficiency. Such cross reporting increases the bargaining power of unsuccessful borrowers, and is robust to collusion against the bank.

Suggested Citation

  • Ashok S. Rai & Tomas Sjostrom, 2001. "Is Grameen Lending Efficient?," CID Working Papers 40A, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:40a
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Conning, 2005. "Monitoring by Peers or by Delegates? Joint Liability Loans and Moral Hazard," Economics Working Paper Archive at Hunter College 407, Hunter College Department of Economics.
    2. Jonathan Conning, 2000. "Monitoring by Peers or by Delegates? Joint Liability Loans under Moral Hazard," Department of Economics Working Papers 2000-07, Department of Economics, Williams College.
    3. Galarza, Francisco, 2003. "El crédito solidario, el colateral social, y la colusión. Algunos apuntes [Group Lending, Social Collateral and Collusion. Some Notes]," MPRA Paper 30442, University Library of Munich, Germany.

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    More about this item

    Keywords

    joint liability; collusion; mechanism design; Grameen Bank;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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