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Is Grameen Lending Efficient?

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  • Ashok S. Rai
  • Tomas Sjostrom

Abstract

The Grameen Bank’s lending has two distinctive features: villagers are held jointly liable for repayments and are asked to make reports about each other. We consider a model where villagers have an information advantage over the bank and can collude. We derive an efficient Grameen type mechanism with cross reports. This mechanism induces villagers to help each other repay their loans without imposing large punishments for default. It yields the efficient outcome whether or not villagers can enforce side contracts. Mechanisms that do not use cross reports, such as individual or joint liability loans, are efficient when villagers can write complete state contingent side contracts, but not otherwise.

Suggested Citation

  • Ashok S. Rai & Tomas Sjostrom, "undated". "Is Grameen Lending Efficient?," CID Working Papers 40, Center for International Development at Harvard University.
  • Handle: RePEc:wop:cidhav:40
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Conning, 2005. "Monitoring by Peers or by Delegates? Joint Liability Loans and Moral Hazard," Economics Working Paper Archive at Hunter College 407, Hunter College Department of Economics.
    2. Jonathan Conning, 2000. "Monitoring by Peers or by Delegates? Joint Liability Loans under Moral Hazard," Department of Economics Working Papers 2000-07, Department of Economics, Williams College.
    3. Galarza, Francisco, 2003. "El crédito solidario, el colateral social, y la colusión. Algunos apuntes
      [Group Lending, Social Collateral and Collusion. Some Notes]
      ," MPRA Paper 30442, University Library of Munich, Germany.

    More about this item

    Keywords

    Joint Liability; Collusion; Mechanism Design; Grameen Bank.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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