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Group lending without joint liability

Fetzer, Thiemo, Quidt, Jonathan de and Ghatak, Maitreesh (2013) Group lending without joint liability. Economic Organisation and Public Policy Discussion Papers (EOPP 044). The London School of Economics and Political Science, Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending by some microfinance institutions First we show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how a purely mechanical argument in favor of the use of groups - namely lower transaction costs - may actually be used explicitly by lenders to encourage the creation of social capital. We also carry out some simulations to evaluate quantitatively the welfare impact of alternative forms of lending, and how they relate to social capital.

Item Type: Monograph (Report)
Official URL: http://sticerd.lse.ac.uk/
Additional Information: © 2013 The Authors
Divisions: STICERD
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HM Sociology
Sets: Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Date Deposited: 22 Jul 2014 09:41
Last Modified: 02 Aug 2019 23:12
URI: http://eprints.lse.ac.uk/id/eprint/58088

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