Group-lending: Sequential financing, lender monitoring and joint liability
AbstractWe develop a simple model of group-lendingbased on peer monitoring and moral hazard. We find that, in the absence of sequential financing or lender monitoring, group-lending schemes may involve under-monitoring with the borrowers investing in undesirable projects. Moreover, under certain parameter configurations, group-lending schemes involving either sequential financing, or a combination of lender monitoringand joint liability are feasible. In fact, group-lending schemes with sequential financing may succeed even in the absence of joint liability, though the repayment rate will be lower. In the absence of joint liability, however, group-lending with lender monitoring is unlikely to be feasible.
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Bibliographic InfoPaper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 04-10.
Length: 32 pages
Date of creation: Dec 2003
Date of revision:
Group-lending; joint liability; peer monitoring; sequential financing; under-monitoring; lender monitoring;
Other versions of this item:
- Chowdhury, Prabal Roy, 2005. "Group-lending: Sequential financing, lender monitoring and joint liability," Journal of Development Economics, Elsevier, vol. 77(2), pages 415-439, August.
- G2 - Financial Economics - - Financial Institutions and Services
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-02 (All new papers)
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