IDEAS home Printed from https://ideas.repec.org/p/egc/wpaper/791.html
   My bibliography  Save this paper

The Economics of Lending with Joint Liability: Theory and Practice

Author

Listed:
  • Maitreesh Ghatak
  • Timothy W. Guinnane

    (Economic Growth Center, Yale University)

Abstract

Institutions that rely on joint liability to facilitate lending to the poor have a long history and are now a common feature of many developing countries. Economists have proposed several theories of joint liability lending that stress various aspects of its informational and enforcement advantages over other forms of lending. This paper analyzes how joint-liability lending promotes screening, monitoring, state verification, and enforcement of repayment. An empirical section draws on case studies to highlight how joint liability works in practice.

Suggested Citation

  • Maitreesh Ghatak & Timothy W. Guinnane, 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Working Papers 791, Economic Growth Center, Yale University.
    • Handle: RePEc:egc:wpaper:791
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Khandker, S.R. & Khalily, B. & Khan, Z., 1995. "Grameen Bank: Performance and Sustainability," World Bank - Discussion Papers 306, World Bank.
    2. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
    3. Guinnane Timothy W., 1994. "A Failed Institutional Transplant: Raiffeisen's Credit Cooperatives in Ireland, 1894-1914," Explorations in Economic History, Elsevier, vol. 31(1), pages 38-61, January.
    4. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
    5. Paul Mosley & Rudra Prasad Dahal, 1985. "Lending to the Poorest: Early Lessons from the Small Farmers' Development Programme, Nepal," Development Policy Review, Overseas Development Institute, vol. 3(2), pages 193-207, November.
    6. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    7. Huppi, Monika & Feder, Gershon, 1990. "The Role of Groups and Credit Cooperatives in Rural Lending," The World Bank Research Observer, World Bank Group, vol. 5(2), pages 187-204, July.
    8. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
    9. Adams, Dale W & Von Pischke, J. D., 1992. "Microenterprise credit programs: Deja vu," World Development, Elsevier, vol. 20(10), pages 1463-1470, October.
    10. Mark Wenner, 1995. "Group credit: A means to improve information transfer and loan repayment performance," Journal of Development Studies, Taylor & Francis Journals, vol. 32(2), pages 263-281.
    11. Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
    12. Douglas W. Diamond, 1996. "Financial intermediation as delegated monitoring: a simple example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 51-66.
    13. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," The World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
    14. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
    15. 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 463-475, July.
    16. Edward Simpson Prescott, 1997. "Group lending and financial intermediation: an example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 23-48.
    17. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," The World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
    18. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, February.
    19. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    20. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    21. David Hulme, 1990. "Can the Grameen Bank be Replicated? Recent experiments in Malaysia, Malawi and Sri Lanka," Development Policy Review, Overseas Development Institute, vol. 8(3), pages 287-300, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    2. Kasarjyan, Milada, 2011. "Improving the functioning of the rural financial markets of Armenia," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 62, number 62.
    3. Kibrom A. ABAY & Bethelhem KORU & Gashaw Tadesse ABATE & Guush BERHANE, 2019. "How Should Rural Financial Cooperatives Be Best Organized? Evidence From Ethiopia," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 90(1), pages 187-215, March.
    4. Rafael Gomez & Eric Santor, 2003. "Do Peer Group Members Outperform Individual Borrowers? A Test of Peer Group Lending Using Canadian Micro-Credit Data," Staff Working Papers 03-33, Bank of Canada.
    5. Hameem Raees Chowdhury, 2016. "Joint-Liability in Microcredit: Evidence from Bangladesh," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(1), pages 105-129, March.
    6. Godquin, Marie, 2004. "Microfinance Repayment Performance in Bangladesh: How to Improve the Allocation of Loans by MFIs," World Development, Elsevier, vol. 32(11), pages 1909-1926, November.
    7. Yawo Agbényégan Noglo, 2013. "La micro-finance est-elle une solution efficace aux causes du rationnement bancaire ? Une analyse économétrique à travers les modèles probit et binomial négatif : Le cas du Togo," Working Papers halshs-01016185, HAL.
    8. Prabal Roy Chowdhury, 2003. "Group-lending: Sequential financing, lender monitoring and joint liability," Discussion Papers 04-10, Indian Statistical Institute, Delhi.
    9. Aga, B.K. & Tesfay, G.B., 2018. "How Should Rural Financial Cooperatives Be Best Organized? Evidence from Ethiopia," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277735, International Association of Agricultural Economists.
    10. Coleman, Brett E., 2006. "Microfinance in Northeast Thailand: Who benefits and how much?," World Development, Elsevier, vol. 34(9), pages 1612-1638, September.
    11. Balkenhol, Bernd. & Schütte, Haje, 2001. "Collateral, collateral law and collateral substitutes," ILO Working Papers 994089173402676, International Labour Organization.
    12. Joel M. Guttman, 2006. "Repayment Performance in Group Lending Programs: A Survey," NFI Working Papers 2006-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    13. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    14. Chowdhury, Shyamal & Chowdhury, Prabal Roy & Sengupta, Kunal, 2014. "Sequential lending with dynamic joint liability in micro-finance," Journal of Development Economics, Elsevier, vol. 111(C), pages 167-180.
    15. Zeller, Manfred, 1996. "Determinants of repayment performance in credit groups," FCND discussion papers 13, International Food Policy Research Institute (IFPRI).
    16. Shyamal Chowdhury & Prabal Roy Chowdhury & Kunal Sengupta, 2014. "Sequential lending with dynamic joint liability in micro-finance," Discussion Papers 14-07, Indian Statistical Institute, Delhi.
    17. Allen, Franklin & Qian, Meijun & Xie, Jing, 2019. "Understanding informal financing," Journal of Financial Intermediation, Elsevier, vol. 39(C), pages 19-33.
    18. Ozgur Emre Ergungor, 2010. "Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1321-1349, October.
    19. Hollis, Aidan & Sweetman, Arthur, 1998. "Microcredit in Prefamine Ireland," Explorations in Economic History, Elsevier, vol. 35(4), pages 347-380, October.
    20. Ozgur Emre Ergungor, 2010. "Bank Branch Presence and Access to Credit in Low‐ to Moderate‐Income Neighborhoods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1321-1349, October.

    More about this item

    Keywords

    Joint Liability; Group Lending; Credit Cooperatives;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:egc:wpaper:791. 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: . General contact details of provider: https://edirc.repec.org/data/egyalus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Benjamin King (email available below). General contact details of provider: https://edirc.repec.org/data/egyalus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.