The role of groups and credit cooperatives in rural lending

Monika Huppi and Gershon Feder

No 284, Policy Research Working Paper Series from The World Bank

Abstract: Processing and collection costs of loans made to small farmers are high relative to the amount lent. Lending groups and credit cooperatives have been ascribed the potential to reach small farmers with affordable credit because the processing of one large loan rather than numerous small loans may allow for savings in administrative costs. These arrangements entail joint liability and reduce the risk of loan default. Some of the factors crucial for successful group lending are: (a) homogeneous borrowing groups that are jointly liable and assume some managerial and supervisory responsibilities; (b) establishing a common bond other than credit to enhance loan repayment as well as introduce savings mobilization; and (c) denying access to future credit to all group members in the case of default by any member. Important factors for succesful outcomes of credit cooperatives include: (a) bottom-up institutional development and training at the grass roots as well as at management levels; (b) savings mobilization by credit cooperatives rendering them financially less dependent on outside sources and enhancing borrowers incentives to repay; and (c) credit cooperatives not rushing to expand their activities beyond financial intermediation.

Keywords: Banks&Banking Reform; Strategic Debt Management; Financial Intermediation; International Terrorism&Counterterrorism; Economic Theory&Research (search for similar items in EconPapers)
Date: 1989-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)

Related works:
Journal Article: The Role of Groups and Credit Cooperatives in Rural Lending (1990)
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:wbk:wbrwps:284

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().