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Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs

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Author Info
Calidoni-Lundberg, Federica () (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
Fedele, Alessandro () (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

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Abstract

Poor local information networks and weak social sanctions in urban settings make joint liability unable to guarantee high repayment rates to microlenders. Yet, microcredit programmes in Western Europe report good performance even if the majority of them charge no collateral. We collect data from three Italian microcredit institutions which operate in urban areas by granting individual loans without collateral to single entrepreneurs and teams (cooperatives and associations) and we find that teams repay with higher probability. On this basis we develop a microlending instrument that, like joint liability implemented in rural economies, extracts information from borrowers through a peer selection mechanism but, differently from joint liability, fits the urban context for it reproduces a cohesion among entrepreneurs based on a profit-maximizing behavior and not on social sanctions.

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Publisher Info
Paper provided by Associazione Italiana per la Cultura della Cooperazione e del Non Profit in its series AICCON Working Papers with number 46-2007.

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Length: 22 pages
Date of creation: 09 Oct 2007
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Handle: RePEc:ris:aiccon:2007_046

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Related research
Keywords: microcredit; urban areas; adverse selection;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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

References listed on IDEAS
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  1. 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)
    Other versions:
  2. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August. [Downloadable!] (restricted)
  3. Alessandro Fedele, 2006. "Joint Liability Lending In Microcredit Markets With Adverse Selection: A Survey," Icfai University Journal of Bank Management, Icfai Press, vol. 0(2), pages 55-63, May.
    Other versions:
  4. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May. [Downloadable!] (restricted)
  5. Laffont, Jean-Jacques & N'Guessan, Tchetche, 2000. "Group lending with adverse selection," European Economic Review, Elsevier, vol. 44(4-6), pages 773-784, May. [Downloadable!] (restricted)
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