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Group Lending and Its Implications in Credit Markets for Poor People

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Author Info
Woerz, Julia (Institute for Advanced Studies)

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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 Format: application/pdf
File Function: First version, 1999
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Publisher 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;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G20 - Financial Economics - - Financial Institutions and Services - - - General
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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