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Joint Liability Lending in Microcredit Markets with Adverse Selection: a Survey

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  • Alessandro Fedele

Abstract

This paper reviews recent literature on joint liability lending in microcredit markets characterized by adverse selection. This mode of lending consists of granting individual loans to wealthless borrowers provided that they form groups: if a group does not fully repay its obligations, then the microlender cut off all members from future credit until the debt is repaid. Joint liability lending is able to extract information through a peer selection mechanism, with the effect of raising both repayment rates and welfare with respect to individual lending.

Suggested Citation

  • Alessandro Fedele, 2006. "Joint Liability Lending in Microcredit Markets with Adverse Selection: a Survey," Working Papers 20060901, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica, revised Sep 2006.
  • Handle: RePEc:mis:wpaper:20060901
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    File URL: http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20060901.pdf
    File Function: First version, June 2006
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    References listed on IDEAS

    as
    1. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-631, July.
    2. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    3. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
    4. Gangopadhyay, Shubhashis & Lensink, Robert, 2001. "Joint liability lending: a note," Research Report 01E09, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. repec:dgr:rugsom:01e09 is not listed on IDEAS
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    Citations

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    Cited by:

    1. F. Calidoni-Lundberg & A. Fedele, 2006. "Technology replaces culture in microcredit markets: the case of Italian MAGs," Economics Department Working Papers 2006-EP11, Department of Economics, Parma University (Italy).
    2. Abdelhamid, El Bouhadi & Omar, Essardi, 2007. "Micro-microcrédit et asymétries d’information : cas du Maroc
      [INFORMATION asymmetries and microcredit: The Moroccan case]
      ," MPRA Paper 20080, University Library of Munich, Germany.
    3. Kundu, AMIT & MITRA, SURANJANA, 2009. "Determinants Influencing a Rural Household's Preference to Join Individual Liability or Joint Liability Micro Credit Contract Operated by Primary Aagricultural Credit Society," MPRA Paper 21784, University Library of Munich, Germany, revised 10 Oct 2009.
    4. Federica Calidoni & Alessandro Fedele, 2009. "Profit-maximizing behaviour replaces social sanctions in urban microcredit markets," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(2), pages 329-349, April.

    More about this item

    Keywords

    microcredit; underdeveloped economies; joint liability lending.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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