Advanced Search
MyIDEAS: Login to save this paper or follow this series

Sequential Group Lending with Moral Hazard

Contents:

Author Info

  • Kumar Aniket

    ()

Abstract

In Grameen Bank's group lending arrangement, all agents within a group do not borrow at the same time. Agents within a group, queue for credit and their credit is conditional on successful repayments of the previous loans. In a group lending model, where all group members borrow in the same time period with joint liability contracts, if monitoring is costly and the effort is not observable to other agents within the group, the agents are able to obtain higher rents with the threat that they would collude not to monitor each other. These higher rents limit this group lending arrangement's ability to finance low productivity projects. An increase in monitoring efficiency has virtually no effect on the group lending arrangement's ability to finance low productivity projects. The paper suggests that within the group, if the agent's projects are financed sequentially, the advantage is that the threat of collusion does not keep rents high along with the disadvantage that expected output is lower. Therefore, we find that between the two group lending arrangements, sequential group lending allows the lender to finance a greater proportion of the socially viable projects if the monitoring technology satisfies a certain efficiency condition.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.ed.ac.uk/papers/aniket(2003)wkpp.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 136.

as in new window
Length: 36
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:edn:esedps:136

Contact details of provider:
Postal: 31 Buccleuch Place, EH8 9JT, Edinburgh
Phone: +44(0)1316508361
Fax: +44(0)1316504514
Web page: http://www.econ.ed.ac.uk/
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kumar Aniket, 2006. "Does Subsidising the Cost of Capital Help the Poorest? An Analysis of Saving Opportunities in Group Lending," ESE Discussion Papers 140, Edinburgh School of Economics, University of Edinburgh.
  2. Timothy N. Cason & Lata Gangadharan & Pushkar Maitra, 2008. "Moral Hazard and Peer Monitoring in a Laboratory Microfinance Experiment," Purdue University Economics Working Papers 1208, Purdue University, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:edn:esedps:136. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gina Reddie).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.