Technology replaces culture in microcredit markets: the case of Italian MAGs

Federica Calidoni () and Alessandro Fedele

No 2006-EP11, Economics Department Working Papers from Department of Economics, Parma University (Italy)

Abstract: We collect data from three Italian microcredit institutions which operate in urban areas by granting individual loans to two categories of wealthless borrowers: single entrepreneurs and organizations (cooperatives and associations).Evidence shows that organizations repay with higher probability and are charged a lower average interest rate than individuals. We use these findings to construct a lending scheme which consists of granting loans provided that borrowers form production teams (i.e. organizations). We consider a microcredit market with adverse selection à la De Meza- Webb and we verify that repayment rate increases, while interest rate falls with respect to individual lending if the above scheme, which we refer to as production team lending, is implemented. Our instrument, like joint liability implemented in rural economies, extracts information from borrowers through a peer selection mechanism but, differently from joint liability, fits to urban contexts where borrowers are less likely to know each other and social sanctions are weak.

Keywords: Microcredit; Urban areas; Production Team Lending; Adverse Selection (search for similar items in EconPapers)
JEL-codes: D82 L31 O12 O16 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006
New Economics Papers: this item is included in nep-dev, nep-ent and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs (2007)
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