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Key Factors of Joint-Liability Loan Contracts: An Empirical Analysis

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  • Kritikos, Alexander S.
  • Vigenina, Denitsa

Abstract

We empirically examine the efficacy of various incentives of microlending contracts such as joint-liability or group access to future loans. We find that joint liability induces a group formation of low risk borrowers. Furthermore, the incentive system leads to peer measures between the borrowers, helping the lender to address the moral hazard and enforcement problem. We also demonstrate that the mechanism realizes high repayment rates, if the loan officers fulfill their complementary duties in the screening and enforcement process. Finally, we show that dynamic incentives have to be restricted if the two problems of joint-liability are to be tackled notably. --

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Bibliographic Info

Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 231.

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Date of creation: 2005
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Handle: RePEc:zbw:euvwdp:231

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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. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
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Cited by:
  1. Thomas Dufhues & Gertrud Buchenrieder & Hoang Dinh Quoc, 2012. "Social capital and loan repayment performance in Northern Vietnam," Agricultural Economics, International Association of Agricultural Economists, vol. 43(3), pages 277-292, 05.
  2. Kritikos, Alexander S. & Bolle, Friedel & Tan, Jonathan H. W., 2005. "The Economics of Solidarity: A Conceptual Framework," Discussion Papers 233, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  3. 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.
  4. Joel M. Guttman, 2006. "Repayment Performance in Group Lending Programs: A Survey," NFI Working Papers 2006-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
  5. Jeffrey Carpenter & Tyler Williams, 2010. "Moral hazard, peer monitoring, and microcredit: field experimental evidence from Paraguay," Working Papers 10-6, Federal Reserve Bank of Boston.
  6. Vittoria Cerasi & Lucia Dalla Pellegrina, 2009. "Solidarity Behind Microfinance," Working Papers 20091101, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
  7. Dyuti Banerjee & Anupama Sethi, 2008. "Intra-Group Transfers And Group Formation," Development Research Unit Working Paper Series 24/08, Monash University, Department of Economics.
  8. Yan Liu & Guang???Zhen Sun, 2008. "Competition And Access Regulation In The Telecommunications Industry With Multiple Networks," Development Research Unit Working Paper Series 25/08, Monash University, Department of Economics.

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