IDEAS home Printed from https://ideas.repec.org/p/bay/rdwiwi/7113.html
   My bibliography  Save this paper

Microfinance and markets: New results for the Besley-Coate group lending model

Author

Listed:
  • Arnold, Lutz G.
  • Reeder, Johannes
  • Steger, Susanne E.

Abstract

Microfinance currently experiences a huge inflow of private investors and a surge in the use of market instruments. This raises the question of what market equilibria in microfinance markets look like and which kinds of market failure tend to afflict them. The present paper conducts an equilibrium analysis of Besley and Coate’s (1995) group lending model with enforcement problems.We show that a consideration of repayment rates alone is not sufficient to predict market outcomes, as it is biased towards group lending. Market equilibria are likely to exhibit the same kinds of market failure as equilibria in adverse selection models, viz., financial fragility, redlining, and credit rationing. Social sanctions ameliorate these problems, but do not eliminate them.

Suggested Citation

  • Arnold, Lutz G. & Reeder, Johannes & Steger, Susanne E., 2009. "Microfinance and markets: New results for the Besley-Coate group lending model," University of Regensburg Working Papers in Business, Economics and Management Information Systems 430, University of Regensburg, Department of Economics.
    • Handle: RePEc:bay:rdwiwi:7113
    as

    Download full text from publisher

    File URL: https://epub.uni-regensburg.de/7113/1/microcredit.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 455-470.
    2. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    Full references (including those not matched with items on IDEAS)

    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. Busetta, Giovanni & Presbitero, Andrea F., 2008. "Confidi, Piccole Imprese E Banche: Un'Analisi Empirica [Mutual Loan-Guarantee Societies, Small Firms and Banks: An Empirical Investigation]," MPRA Paper 7832, University Library of Munich, Germany.
    2. Innes, Robert, 1987. "Adverse Selection And Tax Externalities In A Model Of Entrepreneurial Investment," Working Papers 225812, University of California, Davis, Department of Agricultural and Resource Economics.
    3. Yaron Leitner, 2004. "Financial networks: contagion, commitment, and private sector bailouts," Working Papers 02-9, Federal Reserve Bank of Philadelphia.
    4. Thorsten Beck & Patrick Behr, 2017. "Individual versus Village Lending: Evidence from Montenegro," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 67-87, November.
    5. Dufhues, Thomas & Buchenrieder, Gertrud & Quoc, Hoang Dinh & Munkung, Nuchanata, 2011. "Social capital and loan repayment performance in Southeast Asia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 679-691.
    6. M. Kabir Hassan, 2002. "The Microfinance Revolution and the Grameen Bank Experience in Bangladesh," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 11(3), pages 205-265, August.
    7. Carpenter, Jeffrey P. & Bowles, Samuel & Gintis, Herbert, 2006. "Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity," IZA Discussion Papers 2106, Institute of Labor Economics (IZA).
    8. Debdatta Pal & Subrata K. Mitra, 2018. "The efficiency of microfinance institutions with problem loans: A directional distance function approach," Computational and Mathematical Organization Theory, Springer, vol. 24(3), pages 285-307, September.
    9. Kislat, Carmen & Menkhoff, Lukas & Neuberger, Doris, 2013. "The use of collateral in formal and informal lending," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79765, Verein für Socialpolitik / German Economic Association.
    10. van Rijn, Jordan, 2018. "The Effect of Membership Expansion on Credit Union Risk and Returns," Staff Paper Series 588, University of Wisconsin, Agricultural and Applied Economics.
    11. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2018. "Commercialization and the decline of joint liability microcredit," Journal of Development Economics, Elsevier, vol. 134(C), pages 209-225.
    12. Catherine Wanjiru Gathitu & Elegwa Mukulu & John Kihoro, 2021. "The influence of credit on the growth of YEDF- funded group-based enterprises in Nairobi County, Kenya," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(2), pages 183-194, March.
    13. Marsh, W. Blake & Sharma, Padma, 2024. "Loan guarantees in a crisis: An antidote to a credit crunch?," Journal of Financial Stability, Elsevier, vol. 72(C).
    14. Ahlin, Christian & Debrah, Godwin, 2022. "Group lending with covariate risk," Journal of Development Economics, Elsevier, vol. 157(C).
    15. Beatriz Armendáriz & Ariane Szafarz, 2011. "On Mission Drift in Microfinance Institutions," World Scientific Book Chapters, in: Beatriz Armendáriz & Marc Labie (ed.), The Handbook Of Microfinance, chapter 16, pages 341-366, World Scientific Publishing Co. Pte. Ltd..
    16. Benjamin A. Olken & Monica Singhal, 2011. "Informal Taxation," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 1-28, October.
    17. Grootaert, Christiaan, 1999. "Social capital, houshold welfare, and poverty in Indonesia," Policy Research Working Paper Series 2148, The World Bank.
    18. Schreiner, Mark & Woller, Gary, 2003. "Microenterprise Development Programs in the United States and in the Developing World," World Development, Elsevier, vol. 31(9), pages 1567-1580, September.
    19. Maitra, Pushkar & Mitra, Sandip & Mookherjee, Dilip & Motta, Alberto & Visaria, Sujata, 2017. "Financing smallholder agriculture: An experiment with agent-intermediated microloans in India," Journal of Development Economics, Elsevier, vol. 127(C), pages 306-337.
    20. repec:ilo:ilowps:408917 is not listed on IDEAS
    21. Joshi, Sumit & Mahmud, Ahmed Saber, 2018. "Unilateral and multilateral sanctions: A network approach," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 52-65.

    More about this item

    Keywords

    microfinance; group lending; enforcement;
    All these keywords.

    JEL classification:

    • G - Financial Economics

    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:bay:rdwiwi:7113. 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: Gernot Deinzer (email available below). General contact details of provider: https://edirc.repec.org/data/wfregde.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.