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Group-lending with sequential financing, contingent renewal and social capital

  • Chowdhury, Prabal Roy

This paper focuses on the dynamic aspects of group-lending, in particular sequential financing and contingent renewal. We examine the encacy of these two schemes in harnessing social capital. We find that, for the appropriate parameter configurations, there is homogenous group-formation so that the lender can ascertain the identity of a group without lending to all its members, thus screening out bad borrowers partially. Moreover, under certain parameter configurations, negative assortative matching occurs as a robust phenomenon.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 84 (2007)
Issue (Month): 1 (September)
Pages: 487-506

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Handle: RePEc:eee:deveco:v:84:y:2007:i:1:p:487-506
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  1. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Working papers 8813, Wisconsin Madison - Social Systems.
  2. 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.
  3. Kumar Aniket, 2005. "Sequential Group Lending with Moral Hazard," ESE Discussion Papers 136, Edinburgh School of Economics, University of Edinburgh.
  4. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  5. Guinnane, T. & Banerjee, A. & Besley, T., 1993. "Thy Neighbor's Keeper: the Design of a Credit Cooperative with Theory and a Test," Papers 705, Yale - Economic Growth Center.
  6. Maitreesh Ghatak & Timothy W. Guinnane, 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Discussion Papers 98-16, University of Copenhagen. Department of Economics.
  7. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, June.
  8. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
  9. Khandker, S.R. & Khalily, B. & Khan, Z., 1995. "Grameen Bank: Performance and Sustainability," World Bank - Discussion Papers 306, World Bank.
  10. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-31, July.
  11. Sudipta Sarangi & Prabirendra Chatterjee, . "Social Identity and Group Lending," Departmental Working Papers 2004-01, Department of Economics, Louisiana State University.
  12. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  13. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  14. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
  15. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  16. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
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