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Group Lending and Its Implications in Credit Markets for Poor People

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  • Woerz, Julia

    (Institute for Advanced Studies)

Abstract

Group lending has proved to be a successful form of lending in credit markets for poor people. In this paper, the policy of the Grameen Bank in Bangladesh is modeled. It is shown that under certain conditions making borrowers jointly liable for their loans can induce repayment even in the absence of formal credit enforcement mechanisms. A distinction is made between ability and willingness to repay. Both aspects crucially depend on the social setting and on the loan size. If social ties are too loose, the social pressure generated by joint liability is not sufficient to induce borrowers to repay. This constraint is more binding in the case of micro-credits.

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File URL: http://www.ihs.ac.at/publications/tec/te-12.pdf
File Function: First version, 1999
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Transition Economics Series with number 12.

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Length: 19 pages
Date of creation: Sep 1999
Date of revision:
Handle: RePEc:ihs:ihstep:12

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Related research

Keywords: Micro credit; Group-lending; Collateral; Bangladesh; Grameen Bank;

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References

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Cited by:
  1. 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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