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Savings, lending rate and skill improvement in micro-finance operating through public-private cooperation

  • Kundu, AMIT

In this paper, micro-finance programme through joint liability credit contract is explained with the help of two-stage game when the programme is operated by a non-motivated NGO with the help of commercial bank and government. We find that even in the presence of public-private cooperation and back ended subsidy provided by the government, both individual sanction as well as social sanction plays an important role of security against credit for proper functioning of the programme. Non-homogeneity among the group members may allow the socially powerful member to force her less powerful co-member to repay her debt with interest and enjoy free ride after taking the advantage of joint liability. We have also proved that the non-motivated NGO who itself plays the function of the self-help group can offer credit to the group members at lowest possible rate of interest and can arrange sufficient training for the group members for skill improvement after group formation if and only if it gets sufficient financial support from the government in the initial period and if the linked commercial bank choose low lending rate to the group in credit-linkage programme. This will also encourage each group member to enhance compulsory savings at maximum amount in each installment in her respective group in both the periods, which ultimately will help her to get higher amount of credit in each period to improve consumption of the member household progressively.

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File URL: http://mpra.ub.uni-muenchen.de/39247/1/MPRA_paper_39247.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39247.

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Date of creation: 04 Jan 2011
Date of revision: 02 Aug 2011
Publication status: Published in IUP Journal of Managerial Economics Nov, 2011.4(2011): pp. 1-19
Handle: RePEc:pra:mprapa:39247
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  1. Roy, Jaideep & Chowdhury, Prabal Roy, 2009. "Public-private partnerships in micro-finance: Should NGO involvement be restricted?," Journal of Development Economics, Elsevier, vol. 90(2), pages 200-208, November.
  2. Chowdhury, Prabal Roy, 2005. "Group-lending: Sequential financing, lender monitoring and joint liability," Journal of Development Economics, Elsevier, vol. 77(2), pages 415-439, August.
  3. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  4. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  5. Chowdhury, Prabal Roy, 2007. "Group-lending with sequential financing, contingent renewal and social capital," Journal of Development Economics, Elsevier, vol. 84(1), pages 487-506, September.
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