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The individual micro-lending contract: is it a better design than joint-liability?: Evidence from Georgia

  • Vigenina, Denotes
  • Kritikos, Alexander S.

We analyze the incentive mechanism of individual micro-lending contracts and we compare its key factors with those of joint-liability loan contracts. Using our data set, we firstly show that in the individual contract there are three elements, the demand for non-conventional collateral, a screening procedure which combines new with traditional elements, and dynamic incentives in combination with the termination threat in case of default, which ensure high repayment rates of up to 100%. We further show that the joint-liability approach may lead to similar repayment rates, however based on a different incentive system. We reveal that the target group which can be efficiently served by either one of the two mechanisms is different.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 28 (2004)
Issue (Month): 2 (June)
Pages: 155-176

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Handle: RePEc:eee:ecosys:v:28:y:2004:i:2:p:155-176
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