The Role of Motivated Financial Institutions on Community Currencies Loans

Rodrigo Leite, Layla dos Santos Mendes, Roberto Tommasetti, Vinicius Mothe Maia and Rodrigo Soto Larrain
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Layla dos Santos Mendes: Brazilian School of Economics and Finance, Getulio Vargas Foundation, Rio de Janeiro 22250-900, Brazil
Roberto Tommasetti: Faculty of Administration and Accounting, Federal University of Rio de Janeiro, Rio de Janeiro 22290-240, Brazil
Vinicius Mothe Maia: Faculty of Administration and Accounting, Federal University of Rio de Janeiro, Rio de Janeiro 22290-240, Brazil
Rodrigo Soto Larrain: COPPEAD Graduate School of Business, Federal University of Rio de Janeiro, Rio de Janeiro 21941-918, Brazil

IJFS, 2022, vol. 10, issue 4, 1-10

Abstract: Community currencies have recently emerged as tools for assisting the disadvantaged. In order to make a contribution to the larger field of community currencies, the purpose of this research is to investigate how a financial institution evaluates community currency lending. We show, using an adverse selection model, the importance of the role of motivated financial institutions in the effectiveness of community currency loans for small entrepreneurs. If those institutions are unmotivated, the market collapses, and only traditional loans are offered. Additionally, if there is enough intrinsic motivation, the size of the loans also increases, which is beneficial to the borrowers. Finally, this paper emphasizes the importance of subsidies in this sector, which act as catalysts by increasing the likelihood that community currency loans will be offered, as well as increasing loan sizes.

Keywords: community currency; microfinance; adverse selection model (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
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