EconPapers    
Economics at your fingertips  
 

Sequential Group Lending with Moral Hazard

Kumar Aniket

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: In Grameen Bank's group lending arrangement, all agents within a group do not borrow at the same time. Agents within a group, queue for credit and their credit is conditional on successful repayments of the previous loans. In a group lending model, where all group members borrow in the same time period with joint liability contracts, if monitoring is costly and the effort is not observable to other agents within the group, the agents are able to obtain higher rents with the threat that they would collude not to monitor each other. These higher rents limit this group lending arrangement's ability to finance low productivity projects. An increase in monitoring efficiency has virtually no effect on the group lending arrangement's ability to finance low productivity projects. The paper suggests that within the group, if the agent's projects are financed sequentially, the advantage is that the threat of collusion does not keep rents high along with the disadvantage that expected output is lower. Therefore, we find that between the two group lending arrangements, sequential group lending allows the lender to finance a greater proportion of the socially viable projects if the monitoring technology satisfies a certain efficiency condition.

Pages: 36
Date: 2003-06
References: Add references at CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Downloads: (external link)
http://www.econ.ed.ac.uk/papers/id136_esedps.pdf

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:edn:esedps:136

Access Statistics for this paper

More papers in Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().

 
Page updated 2022-09-25
Handle: RePEc:edn:esedps:136