Solidarity Behind Microfinance

Vittoria Cerasi () and Lucia Dalla Pellegrina ()
Additional contact information
Lucia Dalla Pellegrina: Department of Statistics, Università degli Studi di Milano-Bicocca

No 20091101, Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica

Abstract: In this paper we analyse the role of peers' solidarity in fostering investment in production in the context of micro?nance. When there is asymmetric information between lenders and borrowers on the use of borrowed funds and loans are not collateralized, there is a high chance that borrowers use loans for current consumption sacrifying productive projects. We study the effect of solidarity in the form of insurance from a network of relatives on borrowers' intertemporal preference for consumption and its impact on myopic behavior. The main result of the model is that solidarity might increase the share of funds devoted to investment but it might also reduce the amount of the loan in equilibrium. This result is in accordance with several features of micro-lending. We test the model using survey data from the World Bank on a sample of households in Bangladesh during the period 1991-1992. Empirical fi?ndings support the predictions of the model.

Keywords: Microfinance; credit rationing; social networks (search for similar items in EconPapers)
JEL-codes: O16 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-mfd and nep-ppm
Date: 2009-11
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20091101.pdf First version, 2009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:mis:wpaper:20091101

Access Statistics for this paper

More papers in Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica
Contact information at EDIRC.
Series data maintained by Matteo Pelagatti ().