To switch or not to switch - Can individual lending do better in microfinance than group lending?
AbstractThese days it has been witnessed, that banks other individual loans instead of group loans and develop products based on individual liability in developing coun- tries. In order to study this surprising turn, we expand the conventional approach on decision making of individuals. A social prestige function is introduced that re- Â‡ects the non-monetary impacts of group membership on the individual and on her decisions. If a borrower possesses more than a critical level of wealth, it is optimal for her to switch to individual borrowing. From a welfare perspective, a mixture of individual and group loans is desirable. However, the average borrower switches from group to individual lending too soon.
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Bibliographic InfoPaper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1106.
Length: 27 pages
Date of creation: 07 Mar 2011
Date of revision: 07 Mar 2011
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Find related papers by JEL classification:
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- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-02 (All new papers)
- NEP-BAN-2011-04-02 (Banking)
- NEP-MAC-2011-04-02 (Macroeconomics)
- NEP-MFD-2011-04-02 (Microfinance)
- NEP-MIC-2011-04-02 (Microeconomics)
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