Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs
AbstractWe collect data from three Italian microcredit institutions, MAG2, MAG4 and MAG6, which operate in Milan, Turin and Reggio Emilia respectively, by targeting two categories of wealthless borrowers: single entrepreneurs and organizations (cooperatives and associations). Evidence shows that organizations repay with higher probability and are charged a lower average interest rate than individuals. We use these findings to construct a lending scheme which consists of granting loans provided that borrowers form production teams (i.e. organizations). We consider a microcredit market with adverse selection à la De Meza-Webb and we verify that both repayment rate and welfare increase, while interest rate falls with respect to individual lending if the above scheme, which we refer to as production team lending, is implemented. Our instrument, like joint liability implemented in rural economies, is able to extract information from borrowers through a peer selection mechanism but, differently from joint liability, fits to urban contexts where borrowers do not know each other and social sanctions are weak.
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Bibliographic InfoPaper provided by Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20060902.
Length: 21 pages
Date of creation: Sep 2006
Date of revision: Sep 2006
microcredit; urban areas; production team lending.;
Other versions of this item:
- Calidoni-Lundberg, Federica & Fedele, Alessandro, 2007. "Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs," AICCON Working Papers 46-2007, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
- F. Calidoni-Lundberg & A. Fedele, 2006. "Technology replaces culture in microcredit markets: the case of Italian MAGs," Economics Department Working Papers 2006-EP11, Department of Economics, Parma University (Italy).
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-ENT-2006-09-30 (Entrepreneurship)
- NEP-FIN-2006-09-30 (Finance)
- NEP-FMK-2006-09-30 (Financial Markets)
- NEP-MFD-2006-09-30 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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