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

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  • Prabal Roy Chowdhury

    ()
    (Indian Statistical Institute, New Delhi)

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

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References

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  1. Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt: Is To Forgive To Forget?," NBER Working Papers 2623, National Bureau of Economic Research, Inc.
  2. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  3. Khandker, S.R. & Khalily, B. & Khan, Z., 1995. "Grameen Bank: Performance and Sustainability," World Bank - Discussion Papers 306, World Bank.
  4. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  5. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, January.
  6. Sudipta Sarangi & Prabirendra Chatterjee, . "Social Identity and Group Lending," Departmental Working Papers 2004-01, Department of Economics, Louisiana State University.
  7. 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.
  8. 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.
  9. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  10. Prabal Roy Chowdhury, 2003. "Group-lending: Sequential financing, lender monitoring and joint liability," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-10, Indian Statistical Institute, New Delhi, India.
  11. Ghatak, M. & Guinnane, T.W., 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Papers 791, Yale - Economic Growth Center.
  12. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
  13. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
  14. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
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Citations

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Cited by:
  1. Kurosaki, Takashi & Khan, Hidayat Ullah, 2011. "Vulnerability of Microfinance to Strategic Default and Covariate Shocks:Evidence from Pakistan," PRIMCED Discussion Paper Series 10, Institute of Economic Research, Hitotsubashi University.
  2. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-67, April.
  3. Kundu, AMIT, 2011. "Savings, lending rate and skill improvement in micro-finance operating through public-private cooperation," MPRA Paper 39247, University Library of Munich, Germany, revised 02 Aug 2011.
  4. Brishti Guha & Prabal Roy Chowdhury, 2012. "Borrower Targeting under Micro-finance Competition with Motivated MFIs," Working Papers 05-2012, Singapore Management University, School of Economics.
  5. Kurosaki, Takashi & Khan, Hidayat Ullah, 2011. "Vulnerability of Microfinance to Strategic Default and Covariate Shocks: Evidence from Pakistan," CEI Working Paper Series 2010-13, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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