Technology Replaces Culture in Microcredit Markets: the Case of Italian MAGs

Federica Calidoni () and Alessandro Fedele

No 46-2007, AICCON Working Papers from Associazione Italiana per la Cultura della Cooperazione e del Non Profit

Abstract: Poor local information networks and weak social sanctions in urban settings make joint liability unable to guarantee high repayment rates to microlenders. Yet, microcredit programmes in Western Europe report good performance even if the majority of them charge no collateral. We collect data from three Italian microcredit institutions which operate in urban areas by granting individual loans without collateral to single entrepreneurs and teams (cooperatives and associations) and we find that teams repay with higher probability. On this basis we develop a microlending instrument that, like joint liability implemented in rural economies, extracts information from borrowers through a peer selection mechanism but, differently from joint liability, fits the urban context for it reproduces a cohesion among entrepreneurs based on a profit-maximizing behavior and not on social sanctions.

Keywords: microcredit; urban areas; adverse selection (search for similar items in EconPapers)
JEL-codes: D82 L31 O12 O16 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-10-09
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Working Paper: Technology replaces culture in microcredit markets: the case of Italian MAGs (2006)
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