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The individual micro-lending contract: Is it a better design than joint-liability? - Evidence from Georgia

Denitsa Vigenina and Alexander Kritikos

No 2005,10, Working Paper Series from European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe

Abstract: We analyze the incentive mechanism of individual micro-lending contracts and we compare its key factors with those of joint-liability loan contracts. Using our data set, we firstly show that in the individual contract there are three elements, the demand for non-conventional collateral, a screening procedure which combines new with traditional elements, and dynamic incentives in combination with the termination threat in case of default, which ensure high repayment rates of up to 100%. We further show that the joint-liability approach may lead to similar repayment rates, however based on a different incentive system. We reveal that the target group which can be efficiently served by either one of the two mechanisms is different.

Date: 2005
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Citations: View citations in EconPapers (3)

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