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Banking with sentiments. A model of fiduciary interactions in micro-credit programs

  • V. Pelligra

    ()

The success of many micro-credit initiatives is difficult to account for in the traditional economic framework, where, mainly because of the assumption of self-interested behaviour, credit is rationed and provided only to those able to back it with collaterals. Having analysed different alternative explanations for such a success, the paper introduces the concept of trust responsiveness in the lender-borrower relationship and formalises it in a psychological game-theoretical model aimed at explaining the unusually high rate of repayment experienced in micro-credit programs. Three well-known psychological effects are introduced to discuss the factors that may positively or negatively affect borrowers’ trustworthiness. This model provides important normative implications for institutional design.

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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200503.

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Date of creation: 2005
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Handle: RePEc:cns:cnscwp:200503
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  1. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  2. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
  3. Abigail Barr & Bill Kinsey, 2002. "Do men really have no shame?," Economics Series Working Papers WPS/2002-05, University of Oxford, Department of Economics.
  4. Dufwenberg, Martin & Gneezy, Uri, 2000. "Measuring Beliefs in an Experimental Lost Wallet Game," Games and Economic Behavior, Elsevier, vol. 30(2), pages 163-182, February.
  5. Jain, Pankaj S., 1996. "Managing credit for the rural poor: Lessons from the Grameen Bank," World Development, Elsevier, vol. 24(1), pages 79-89, January.
  6. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
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