Group Lending and Its Implications in Credit Markets for Poor People

Julia Woerz ()

No 12, Transition Economics Series from Institute for Advanced Studies

Abstract: Group lending has proved to be a successful form of lending in credit markets for poor people. In this paper, the policy of the Grameen Bank in Bangladesh is modeled. It is shown that under certain conditions making borrowers jointly liable for their loans can induce repayment even in the absence of formal credit enforcement mechanisms. A distinction is made between ability and willingness to repay. Both aspects crucially depend on the social setting and on the loan size. If social ties are too loose, the social pressure generated by joint liability is not sufficient to induce borrowers to repay. This constraint is more binding in the case of micro-credits.

Keywords: Micro credit; Group-lending; Collateral; Bangladesh; Grameen Bank (search for similar items in EconPapers)
JEL-codes: D82 G20 O16 (search for similar items in EconPapers)
Pages: 19 pages
Date: 1999-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://irihs.ihs.ac.at/id/eprint/1203 First version, 1999 (application/pdf)

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