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Savings, lending rate and skill improvement in micro-finance operating through public-private cooperation


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  • Kundu, AMIT


In this paper, micro-finance programme through joint liability credit contract is explained with the help of two-stage game when the programme is operated by a non-motivated NGO with the help of commercial bank and government. We find that even in the presence of public-private cooperation and back ended subsidy provided by the government, both individual sanction as well as social sanction plays an important role of security against credit for proper functioning of the programme. Non-homogeneity among the group members may allow the socially powerful member to force her less powerful co-member to repay her debt with interest and enjoy free ride after taking the advantage of joint liability. We have also proved that the non-motivated NGO who itself plays the function of the self-help group can offer credit to the group members at lowest possible rate of interest and can arrange sufficient training for the group members for skill improvement after group formation if and only if it gets sufficient financial support from the government in the initial period and if the linked commercial bank choose low lending rate to the group in credit-linkage programme. This will also encourage each group member to enhance compulsory savings at maximum amount in each installment in her respective group in both the periods, which ultimately will help her to get higher amount of credit in each period to improve consumption of the member household progressively.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39247.

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Date of creation: 04 Jan 2011
Date of revision: 02 Aug 2011
Publication status: Published in IUP Journal of Managerial Economics Nov, 2011.4(2011): pp. 1-19
Handle: RePEc:pra:mprapa:39247

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Keywords: Micro Savings; Micro Credit; Self-Help Group; SGSY Scheme; Public-Private Cooperation; Non Motivated NGO; Simultaneous Financing; Lending Rate; Social Sanction; Individual Sanction;

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  1. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  2. Prabal Roy Chowdhury, 2006. "Group-lending with sequential financing, contingent renewal and social capital," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 06-01, Indian Statistical Institute, New Delhi, India.
  3. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  4. Roy Chowdhury, Prabal & Roy, Jaideep, 2007. "Public-private Partnerships in Micro-finance: Should NGO Involvement be Restricted?," MPRA Paper 4469, University Library of Munich, Germany.
  5. 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.
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