Matching for Credit: Identifying information asymmetries in joint-liability lending

Thilo Klein

No 24-070, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Microcredit, a financial tool providing uncollateralized loans to low-income individuals, has seen a shift from joint-liability (JL) to individual liabil- ity (IL) lending models. This article tests a theory explaining this shift, focusing on borrowers matching into groups exposed to similar economic shocks under JL, diminishing its effectiveness. I reconcile conflicting theo- retical predictions and propose an empirical strategy to distinguish adverse selection from moral hazard effects. Using data from Thailand, I find that increasing diversity within borrower groups leads to a 10 percentage point improvement in timely repayment. These results inform contract design and strategies to reduce information asymmetries in lending practices

Keywords: microcredit; joint liability; diversification; market design; stable matching; endogeneity; selection model; agriculture; Thailand (search for similar items in EconPapers)
JEL-codes: C11 C31 C34 C36 C57 C78 D02 D47 D82 G21 O16 Q14 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:312189

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