Is it better to be mixed in group lending?

Francesco Reito

Review of Development Economics, 2019, vol. 23, issue 1, 54-71

Abstract: This paper shows that, in a group‐lending scheme with joint liability, a microfinance institution can achieve a Pareto improvement by promoting negative assortative matching among borrowers. The main results are: (i) borrowers may be better off in heterogeneous groups; and (ii) a heterogeneous group equilibrium is possible when individual or homogeneous group equilibria do not exist.

Date: 2019
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https://doi.org/10.1111/rode.12549

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