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Group-lending with sequential financing, contingent renewal and social capital

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Author Info
Prabal Roy Chowdhury () (Indian Statistical Institute, New Delhi)

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Abstract

This paper focuses on the dynamic aspects of group-lending, in particular sequential financing and contingent renewal. We examine the encacy of these two schemes in harnessing social capital. We find that, for the appropriate parameter configurations, there is homogenous group-formation so that the lender can ascertain the identity of a group without lending to all its members, thus screening out bad borrowers partially. Moreover, under certain parameter configurations, negative assortative matching occurs as a robust phenomenon.

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Publisher Info
Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 06-01.

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Length: 32 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:ind:isipdp:06-01

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Related research
Keywords: Group-lending; sequential financing; contingent renewal; social capital; assortative matching;

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Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy

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  1. Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 491-515, May. [Downloadable!] (restricted)
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  2. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October. [Downloadable!] (restricted)
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  3. Kumar Aniket, 2005. "Sequential Group Lending with Moral Hazard," ESE Discussion Papers 136, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  4. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-31, July. [Downloadable!] (restricted)
  5. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017.
  6. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January. [Downloadable!] (restricted)
  7. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March. [Downloadable!] (restricted)
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  8. Sudipta Sarangi & Prabirendra Chatterjee, . "Social Identity and Group Lending," Departmental Working Papers 2004-01, Department of Economics, Louisiana State University. [Downloadable!]
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  9. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December. [Downloadable!] (restricted)
  10. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 351-66, September.
  11. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
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