▶ Microcredit lenders lend to poor people using individual or group loans. ▶ Moral hazard constrains the size of the loan that a poor borrower can obtain. ▶ Group loans may be larger than individual ...loans for the poorer borrowers. However, incentives for the wealthier among the poor, credit-constrained borrowers may be better under the individual contract. ▶ For these borrowers, individual loans are larger than group loans and result in larger businesses.
I offer an explanation for the coexistence of joint-liability and individual-liability microcredit contracts. I show that both contracts maximize welfare when credit is rationed due to limited liability, but for different borrowers. Borrowers monitor each other when liability is joint, while the lender monitors individual loans. Joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender. Individual liability offers the wealthier among credit-constrained borrowers larger loans even without monitoring. The theory explains why individual loans serve the wealthier among poor borrowers and are larger, and why businesses funded with individual loans grow more.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
•Limited joint liability component for Eurobonds enhances efficiency and stability.•Stable, beneficial and politically feasible for various Eurobond types.•Constant joint liability level of 10% ...always close to optimum.•Different scenarios as PIIGS, EU-6 or debt weighted bonds are all beneficial.•Redistribution of gains ensure profitability even for AAA countries.
We introduce an analytical tool to study the effects of a limited joint liability component for several variants of Eurobonds. Our approach allows to optimize the degree of jointness and therefore could overcome the huge and emotionally influenced political obstacle of joint liability.
Interest savings reach 0.5 percentage points depending on the degree of joint liability even in the current economic environment. A constant degree of 10% of joint liability of each country’s individual share is close to optimum for a very broad range of scenarios. We can thus price the political cost of joint liability. The approach is stable over time and robust in different scenarios.
In the sensitivity analysis, we examine different scenarios as, e.g. a PIIGS bond and an EU-6 bond, which are all beneficial for each individual country as well as the community. Due to risk diversification, countries with a high-interest load contribute most to the profitability of the structure while AAA countries provide credibility and market acceptance.
Summarizing, enhancing Eurobond approaches by a limited joint liability component would result in a stable, very beneficial and politically feasible tool for a European fiscal system.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
In a random sample of clients of CFPAM, the largest microlender in China, 73% of all joint-liability groups practice Lei Da Hu. That is, one person uses all group members’ loans in a single project. ...We call such borrower groups ‘bogus groups’. The Lei Da Hu practice violates a key premise of group lending, that each borrower must use their loan in a separate project (what we call ‘standard group’). We extend the theory of group lending by analyzing the endogenous formation and coexistence of standard and bogus groups and characterize the efficient lending terms. The chosen group form depends on the borrower productivities and probability of success. Bogus groups are formed by heterogeneous borrowers, when the gains from larger expected output exceed the foregone default risk diversification. Accounting for bogus groups in their lending strategy can help MFIs raise productive efficiency and borrower welfare.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
Microfinance has received a lot of attention recently, both from policy makers as well as in academic circles. Two of the main topics that have been hotly debated are explaining joint liability group ...lending and its implications for reducing information asymmetries, and the trade-off between the financial sustainability and outreach of microfinance programmes. This Feature contains three novel empirical contributions providing new insights with respect to why and how joint liability group lending works. It also contains the first large-scale systematic analysis of the trade-off between financial performance and outreach of microfinance institutions.
Full text
Available for:
BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
The changes in production systems and in the labor management techniques, due to the modification of the taylorist-fordist system to the toyotism system, have had as one of its most important ...expressions to date the outsourcing of workforces and services. This institute has once more had a centralized academic and political debate since the discussion of the law proposal #4330/2004 and the approval of the House Bill #30/2015. However, the core of these discussions rests primarily in the authorization of the outsourcing of companies’ activities. In a secondary way, this paper will discuss the workers’ union representation and the responsibility of the main company. Moreover, this paper aims to reverse the discussion, focusing on the labour responsibility of the main company and on the clause of non-discrimination between the direct workers and the workers in triangular relationships, which was not even mentioned in the political debate. Therefore, in this model, these measures would be disincentives for precarious outsourcing and it needs to be dissociated from the mere pursuit of lowering labor costs, if the company wants to use it as a viable option.
Giving Credit Where It Is Due Banerjee, Abhijit V.; Duflo, Esther
The Journal of economic perspectives,
07/2010, Volume:
24, Issue:
3
Journal Article
Peer reviewed
Open access
In the last few years, field experiments have emerged as an attractive new tool in the effort to elaborate our understanding of economic issues relevant to poor countries and poor people. By enabling ...the researcher to precisely control the variation in the data, field experiments allow the estimation of parameters and testing of hypotheses that would be very difficult to implement with observational data. The results of this body of empirical work, in turn, have pushed theory in new directions. Much of this paper illustrates the power of this interplay between experimental and theoretical thinking. Rather than discussing this in the abstract, we focus on one area where the recent empirical work has been particularly exciting and useful—credit. Credit markets in developing countries offer up many facts and puzzles that lead us to build theories based on informational constraints and psychological limitations. The empirical work inspired by these theories, in turn, has generated both support for the theories, which then influenced policy thinking, and new puzzles, which have prompted new efforts to improve the theory. We see the substantive, two-way conversation taking place between theory and data around credit markets in developing economies as a promising template for the field.
Full text
Available for:
BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
Group lending is a common practice that Microfinance Institutions (MFIs) utilize when lending to individuals without collateral. We develop a multi-agent principal-agent model with costly peer ...monitoring and solve for the optimal group loan contract. The optimal contract exhibits (i) a joint-liability scheme; and, (ii) asymmetric loan terms which can be interpreted as appointing a group leader, who has strong incentives to monitor her peer. Relaxing the joint-liability scheme implies the breakdown of equilibrium monitoring. When the contractual asymmetry is relaxed, the peer-monitoring game exhibits multiple Nash equilibria: a (weak) good equilibrium at which borrowers monitor each other and a (strong) bad equilibrium without monitoring. This key result suggests that profit maximizing MFIs should provide asymmetric group loan contracts - even to a homogeneous group of borrowers - to ensure stability in repayment rates.
Full text
Available for:
GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK, ZRSKP
Theories rationalising joint liability lending are rich in implications for repayment rates. We exploit this fact to test four diverse models. We show that the models' repayment implications do not ...always coincide. For example, higher correlation of output and borrowers' ability to act cooperatively can raise or lower repayment, depending on the model. Data from Thai borrowing groups suggest that repayment is affected negatively by the joint liability rate (ceteris paribus) and social ties, and positively by the strength of local sanctions and correlated returns. Further, the relative fit of the adverse selection versus informal sanctions models varies by region.
Full text
Available for:
BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
Women Empowerment has been on national agenda of every government. In developing nation women comprises fifty percent of the population so empowering them is crucial for development and nation ...building. Various Microfinance Institutions (MFIs) extends microcredit/loan via group model (Self Help Groups and Joint Liability Groups) to the marginalised segment particularly women groups and minorities primarily residing in rural areas with an aim to empower them and foster their socio-economic development. Previous studies have shown that microcredit has positive impact, but providing credit alone does not guarantee empowerment of the member beneficiaries. From past studies it can be concluded that empowerment demand an integrated approach from all the participating bodies/institutions involved, only then can be the objective of socio-economic development be accomplished. Since today very limited literature is available on microcredit and its impact. The current research examines the impact of microcredit on women empowerment indicators (decision making, awareness and psychological factors) of member beneficiaries in Haridwar district of Uttarakand. Women are organized into groups (Joint Liability Groups) and provided microcredit /loan. Non Probability sampling (Convenience Sampling) technique is adopted in sample selection where access to microcredit serves as independent variable and women empowerment indicators serves as dependent variables. The study consists of sample size of 362 member beneficiaries. Hypothesis testing is applied to find the significant association between the dependent and independent variables. Inferential statistics i.e Chi sq test is used to find the association/relationship between access to microcredit and empowerment indicators. Results indicate that there is no association between access to microcredit and women empowerment indicators. The results indicate that microcredit vial JLGs makes no impact on the empowerment indicators, making no improvement in the lives of its beneficiaries. There is need of regular and continuous impact assessment by credit institutions, participation from states and local bodies, must be analysis of socio-cultural factors and formation of women self administered system are some of the recommendations of the study. The results can be used by various stakeholders in designing better approach and as it provides them information on the areas which needs improvement so that microcredit can bring positive difference in the lives of beneficiaries. Also, it opens doors for further research in order to explore the socio-cultural factors which influence women empowerment.
Joint liability credit groups are often formed through a self-selection process. Partner choice presents complex tradeoffs between behavioral expectations, risk diversification, monitoring, and ...enforcement. Most prior studies have found partner selection to be non-optimal financially. In this study, we explore social, spatial, economic, and demographic factors that may be driving the selection process. A unique analytical approach is used based on the selection order of partners in joint liability groups. We decompose a group leader’s sequence of partner invitations into a series of ranked choices. The results indicate that socially and spatially proximate members are likely to be prioritized in the selection process, even though other potential members may possess stronger financial traits, such as higher monthly sales or business equity. There is also evidence of early selection based on gender, marital status, children, and matching business type. The analysis suggests that partner selection may be driven by social incentives and the avoidance of strategic default. More broadly, this study suggests which factors are prioritized when actors have choice over whom to partner with in a social dilemma.
PDF
