Optimal group size in microlending

Philip Protter () and Alejandra Quintos ()
Additional contact information
Philip Protter: Columbia University
Alejandra Quintos: Columbia University

Annals of Finance, 2022, vol. 18, issue 1, No 5, 132 pages

Abstract: Abstract Microlending, where a bank lends to a small group of people without credit histories, began with the Grameen Bank in Bangladesh, and is widely seen as the creation of Muhammad Yunus, who received the Nobel Peace Prize in recognition of his largely successful efforts. Since that time the modeling of microlending has received a fair amount of academic attention. One of the issues not yet addressed in full detail, however, is the issue of the size of the group. Some attention has nevertheless been paid using an experimental and game theory approach. We, instead, take a mathematical approach to the issue of an optimal group size, where the goal is to minimize the probability of default of the group. To do this, one has to create a model with interacting forces, and to make precise the hypotheses of the model. We show that the original choice of Muhammad Yunus, of a group size of five people, is, under the right, and, we believe, reasonable hypotheses, either close to optimal, or even at times exactly optimal, i.e., the optimal group size is indeed five people.

Keywords: Microcredit; Microlending; Group lending; Group size (search for similar items in EconPapers)
JEL-codes: C02 C60 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10436-020-00382-0 Abstract (text/html)
Access to full text is restricted to subscribers.

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: https://EconPapers.repec.org/RePEc:kap:annfin:v:18:y:2022:i:1:d:10.1007_s10436-020-00382-0

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-020-00382-0

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().