IDEAS home Printed from https://ideas.repec.org/a/bla/etrans/v17y2009i2p329-349.html
   My bibliography  Save this article

Profit‐maximizing behaviour replaces social sanctions in urban microcredit markets The case of Italian MAGs1

Author

Listed:
  • Federica Calidoni
  • Alessandro Fedele

Abstract

Poor local information networks and weak social sanctions in urban settings make joint liability unable to guarantee high repayment rates to microlenders. Yet, microcredit programmes in Western Europe report good performance even if the majority of them require no collateral. We collected data from three Italian microcredit institutions which operate in urban areas, granting individual loans without collateral to single entrepreneurs and teams (associations and cooperatives). We found that teams repay with higher probability. On this basis we developed a microlending instrument which, like joint liability implemented in rural economies, mitigates informational problems but, unlike joint liability, fits the urban context in that it reproduces a cohesion among entrepreneurs based on profit‐maximizing behaviour and not on social capital.

Suggested Citation

  • Federica Calidoni & Alessandro Fedele, 2009. "Profit‐maximizing behaviour replaces social sanctions in urban microcredit markets The case of Italian MAGs1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(2), pages 329-349, April.
    • Handle: RePEc:bla:etrans:v:17:y:2009:i:2:p:329-349
    DOI: 10.1111/j.1468-0351.2009.00352.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-0351.2009.00352.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1468-0351.2009.00352.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    3. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    4. Laffont, Jean-Jacques & N'Guessan, Tchetche, 2000. "Group lending with adverse selection," European Economic Review, Elsevier, vol. 44(4-6), pages 773-784, May.
    5. Laffont, Jean-Jacques, 2003. "Collusion and group lending with adverse selection," Journal of Development Economics, Elsevier, vol. 70(2), pages 329-348, April.
    6. 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.
    7. Alessandro Fedele, 2006. "Joint Liability Lending In Microcredit Markets With Adverse Selection: A Survey," The IUP Journal of Bank Management, IUP Publications, vol. 0(2), pages 55-63, May.
    8. Alexander Tedeschi, Gwendolyn, 2006. "Here today, gone tomorrow: Can dynamic incentives make microfinance more flexible?," Journal of Development Economics, Elsevier, vol. 80(1), pages 84-105, June.
    9. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 281-292.
    10. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
    11. Guttman, Joel M., 2008. "Assortative matching, adverse selection, and group lending," Journal of Development Economics, Elsevier, vol. 87(1), pages 51-56, August.
    12. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilios Galariotis & Christophe Villa & Nurmukhammad Yusupov, 2011. "Recent Advances in Lending to the Poor with Asymmetric Information," Journal of Development Studies, Taylor & Francis Journals, vol. 47(9), pages 1371-1390, July.

    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. Ahlin, Christian, 2015. "The role of group size in group lending," Journal of Development Economics, Elsevier, vol. 115(C), pages 140-155.
    2. 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).
    3. Xavier Giné & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2010. "Microfinance Games," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 60-95, July.
    4. Emilios Galariotis & Christophe Villa & Nurmukhammad Yusupov, 2011. "Recent Advances in Lending to the Poor with Asymmetric Information," Journal of Development Studies, Taylor & Francis Journals, vol. 47(9), pages 1371-1390, July.
    5. Guttman, Joel M., 2008. "Assortative matching, adverse selection, and group lending," Journal of Development Economics, Elsevier, vol. 87(1), pages 51-56, August.
    6. 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.
    7. M. Shahe Emran & A. K. M. Mahbub Morshed & Joseph E. Stiglitz, 2021. "Microfinance and missing markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 34-67, February.
    8. Al-Azzam, Moh'd & Carter Hill, R. & Sarangi, Sudipta, 2012. "Repayment performance in group lending: Evidence from Jordan," Journal of Development Economics, Elsevier, vol. 97(2), pages 404-414.
    9. 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).
    10. Christian Ahlin, 2020. "Group lending, matching patterns, and the mystery of microcredit: Evidence from Thailand," Quantitative Economics, Econometric Society, vol. 11(2), pages 713-759, May.
    11. Li Gan & Manuel A. Hernandez & Yanyan Liu, 2018. "Group Lending With Heterogeneous Types," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 895-913, April.
    12. Kumar Aniket, 2007. "Does Subsidising the Cost of Capital Help the Poorest? An Analysis of Saving Opportunities in Group Lending," Edinburgh School of Economics Discussion Paper Series 140, Edinburgh School of Economics, University of Edinburgh.
    13. Guush Berhane & Cornelis Gardebroek & Henk A. J. Moll, 2009. "Risk‐matching behavior in microcredit group formation: evidence from northern Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 40(4), pages 409-419, July.
    14. Xavier Gine & Dean Karlan, 2006. "Group versus Individual Liability: A Field Experiment in the Philippines," Working Papers 940, Economic Growth Center, Yale University.
    15. Xavier Giné & Dean Karlan, 2009. "Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups," Working Papers 970, Economic Growth Center, Yale University.
    16. Laffont, Jean-Jacques, 2003. "Collusion and group lending with adverse selection," Journal of Development Economics, Elsevier, vol. 70(2), pages 329-348, April.
    17. Altınok, Ahmet & Sever, Can, 2014. "Efficient Microlending without Joint Liability," MPRA Paper 56598, University Library of Munich, Germany.
    18. Agarwal, Sumit & Ambrose, Brent W. & Chomsisengphet, Souphala & Liu, Chunlin, 2016. "Joint liability lending and credit risk: Evidence from the home equity market," Journal of Housing Economics, Elsevier, vol. 32(C), pages 47-66.
    19. Giovanni BUSETTA & Alberto ZAZZARO, 2006. "Mutual Loan-Guarantee Societies in Credit Markets with Adverse Selection: Do They Act as a Sorting Device?," Working Papers 273, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    20. Hisaki KONO & Kazushi TAKAHASHI, 2010. "Microfinance Revolution: Its Effects, Innovations, And Challenges," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 15-73, March.

    More about this item

    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:bla:etrans:v:17:y:2009:i:2:p:329-349. See general information about how to correct material in RePEc.

    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: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ebrdduk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.