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The Economics of Lending with Joint Liability: Theory and Practice

Listed author(s):
  • Maitreesh Ghatak
  • Timothy W. Guinnane

    ()

    (Economic Growth Center, Yale University)

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.

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Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 791.

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Length: 33 pages
Date of creation: Oct 1998
Handle: RePEc:egc:wpaper:791
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  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. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
  6. Huppi, Monika & Feder, Gershon, 1990. "The Role of Groups and Credit Cooperatives in Rural Lending," World Bank Research Observer, World Bank Group, vol. 5(2), pages 187-204, July.
  7. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
  8. Adams, Dale W & Von Pischke, J. D., 1992. "Microenterprise credit programs: Deja vu," World Development, Elsevier, vol. 20(10), pages 1463-1470, October.
  9. 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.
  10. Douglas W. Diamond, 1996. "Financial intermediation as delegated monitoring: a simple example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 51-66.
  11. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
  12. 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.
  13. Edward Simpson Prescott, 1997. "Group lending and financial intermediation: an example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 23-48.
  14. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
  15. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, July.
  16. 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.
  17. 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.
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