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Banking with sentiments. A model of fiduciary interactions in micro-credit programs

Vittorio Pelligra

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: The success of many micro-credit initiatives is difficult to account for in the traditional economic framework, where, mainly because of the assumption of self-interested behaviour, credit is rationed and provided only to those able to back it with collaterals. Having analysed different alternative explanations for such a success, the paper introduces the concept of trust responsiveness in the lender-borrower relationship and formalises it in a psychological game-theoretical model aimed at explaining the unusually high rate of repayment experienced in micro-credit programs. Three well-known psychological effects are introduced to discuss the factors that may positively or negatively affect borrowers' trustworthiness. This model provides important normative implications for institutional design.

Keywords: microfinance; trust responsiveness; psychological game theory (search for similar items in EconPapers)
JEL-codes: C72 D02 E26 O12 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cbe, nep-fmk, nep-mfd and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:200503

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