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A Dynamic Model Of Microlending In The Developing Countries

  • Katchova, Ani L.
  • Miranda, Mario J.
  • Gonzalez-Vega, Claudio

In this paper, we examine the contract design problem of banks that extend loans to poor borrowers and seek to maximize outreach while remaining financially sustainable. A dynamic model is developed that shows how interest rates can be determined based on information about productivity and diligence characteristics of borrowers, investment opportunities, correlation of business activities, peer monitoring costs, and social sanctions. The results indicate that relative to the traditional static models, the dynamic model explains better the current experience in individual and group lending in developing countries.

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File URL: http://purl.umn.edu/20635
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2001 Annual meeting, August 5-8, Chicago, IL with number 20635.

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Date of creation: 2001
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Handle: RePEc:ags:aaea01:20635
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  1. 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.
  2. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
  3. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February.
  4. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  5. Gonzalez-Vega, Claudio & Schreiner, Mark & Meyer, Richard L. & Rodriguez-Meza, Jorge & Navajas, Sergio, 1996. "Bancosol: The Challenge Of Growth For Microfinance Organizations," Economics and Sociology Occasional Papers 28333, Ohio State University, Department of Agricultural, Environmental and Development Economics.
  6. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  7. Sergio Navajas & Jonathan Conning & Claudio Gonzalez-Vega, 2003. "Lending technologies, competition and consolidation in the market for microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 747-770.
  8. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  9. Chaves, Rodrigo A. & Gonzalez-Vega, Claudio, 1996. "The design of successful rural financial intermediaries: Evidence from Indonesia," World Development, Elsevier, vol. 24(1), pages 65-78, January.
  10. 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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