Group versus Individual Lending in Microfinance

Maria Lehner

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Microfinance is typically associated with joint liability of group members. However, a large part of microfinance institutions rather offers individual instead of group loans. We analyze the incentive mechanisms in both individual and group contracts. Moreover, we show that microfinance institutions offer group loans when the loan size is rather large, refinancing costs are high, and competition between microfinance institutions is low. Otherwise, individual loans are offered. Interestingly, our analysis predicts that individual lending in microfinance will gain in importance in the future if microfinance institutions continue to get better access to capital markets and if competition further rises.

JEL-codes: F37 G21 G34 L13 O16 (search for similar items in EconPapers)
Date: 2008-11-17
New Economics Papers: this item is included in nep-cta, nep-dev and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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