Is Grameen Lending Efficient?

Ashok S. Rai and Tomas Sjostrom

No 40A, CID Working Papers from Center for International Development at Harvard University

Abstract: Many believe that a key innovation by the Grameen Bank is to encourage its borrowers to help each other in hard times. To analyze this we study a novel mechanism design problem where borrowers share information about each other, but their limited side contracting ability prevents them from writing complete insurance contracts. We derive a lending mechanism which efficiently induces mutual insurance. It is necessary for borrowers to submit reports about each other to achieve efficiency. Such cross reporting increases the bargaining power of unsuccessful borrowers, and is robust to collusion against the bank.

Keywords: joint liability; collusion; mechanism design; Grameen Bank (search for similar items in EconPapers)
JEL-codes: D82 O16 (search for similar items in EconPapers)
Date: 2001-12
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