Profit‐maximizing behaviour replaces social sanctions in urban microcredit markets The case of Italian MAGs1

Federica Calidoni () and Alessandro Fedele

The Economics of Transition, 2009, vol. 17, issue 2, 329-349

Abstract: Poor local information networks and weak social sanctions in urban settings make joint liability unable to guarantee high repayment rates to microlenders. Yet, microcredit programmes in Western Europe report good performance even if the majority of them require no collateral. We collected data from three Italian microcredit institutions which operate in urban areas, granting individual loans without collateral to single entrepreneurs and teams (associations and cooperatives). We found that teams repay with higher probability. On this basis we developed a microlending instrument which, like joint liability implemented in rural economies, mitigates informational problems but, unlike joint liability, fits the urban context in that it reproduces a cohesion among entrepreneurs based on profit‐maximizing behaviour and not on social capital.

Date: 2009
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