Group lending and self-help groups: joint benefit as an alternative governance mechanism
Lending to the rural poor in developing economies, although crucial from the perspective of poverty management, is often subjected to severe informational problems. The literature on group lending with joint liability attempts to resolve these problems by making failure more costly for the borrowers. We take a different approach. In a model of lending with moral hazard, we show that rewarding group success by promising a joint benefit can be used as an alternative mechanism to solve informational problems. We also show that, unlike joint liabilitymechanism, this joint-benefit mechanism would ensure higher repayment probability even in the absence of peer-monitoring. Moreover, in this model, the optimal group size can be endogenously determined.
Volume (Year): 17 (2008)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RJTE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RJTE20|
When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:17:y:2008:i:1:p:1-19. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.