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Group Lending Without Joint Liability

Thiemo Fetzer, Maitreesh Ghatak () and Jonathan de Quidt ()

STICERD - Economic Organisation and Public Policy Discussion Papers Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending by some microfinance institutions First we show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how a purely mechanical argument in favor of the use of groups - namely lower transaction costs - may actually be used explicitly by lenders to encourage the creation of social capital. We also carry out some simulations to evaluate quantitatively the welfare impact of alternative forms of lending, and how they relate to social capital.

Keywords: microfinance; group lending; joint liability; mutual insurance (search for similar items in EconPapers)
JEL-codes: G11 G21 O12 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ias, nep-mfd and nep-mic
Date: 2013-07
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http://sticerd.lse.ac.uk/dps/eopp/eopp44.pdf (application/pdf)

Related works:
Journal Article: Group lending without joint liability (2016) Downloads
Working Paper: Group Lending Without Joint Liability (2013) Downloads
Working Paper: Group lending without joint liability (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stieop:044

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