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Over the years, the lending procedures of microcredit has evolved. The original joint liability group lending with simultaneous financing (loans released at once) has been replaced by sequential financing (loans released one by one). Moreover, recent studies suggest individual liability lending in groups to be the optimal choice. While numerous theoretical studies provide thorough models of each of these approaches, none presents a comparative analysis. In this study, we model these three schemes using the framework by Van Tassel (1999) and compare them. Further, we add exogenous peer monitoring costs and within-group heterogeneity of loan sizes to our models. Our findings prove that, in the presence of information asymmetry, group lending with joint liability dominates individual liability lending in groups. Furthermore, the interest rate of the sequential model is more sensitive to changes of monitoring costs or opportunity costs of capital than in the sequential model. On the contrary, sequential approach allows for higher degree of within-group heterogeneity of loan sizes. It is ambiguous which model achieves higher profit and lower interest rate. Our results confirm that the choice of optimal financing approach is determined by the characteristics of borrowers. JEL Classificiation G2 Keywords...

<p>Poor people often lack collateral, which is one of the reasons that they have no access to</p><p>formal financial institutions. Microfinance institutions (MFIs) provide financial services to</p><p>poor people. Traditional MFIs have received some criticism, for instance that they do not</p><p>target the poorest of the poor. This paper, with a field study from Dhaka, takes a closer look at</p><p>SafeSave, a new MFI working in a quite different way than the traditional MFIs in</p><p>Bangladesh. The conclusion of this paper is that SafeSave’s more flexible services are able to</p><p>reach the poor better than the services of traditional MFIs, but might not be the best solution</p><p>seen from a long-term development perspective.</p>

Poor people often lack collateral, which is one of the reasons that they have no access to formal financial institutions. Microfinance institutions (MFIs) provide financial services to poor people. Traditional MFIs have received some criticism, for instance that they do not target the poorest of the poor. This paper, with a field study from Dhaka, takes a closer look at SafeSave, a new MFI working in a quite different way than the traditional MFIs in Bangladesh. The conclusion of this paper is that SafeSave’s more flexible services are able to reach the poor better than the services of traditional MFIs, but might not be the best solution seen from a long-term development perspective.

abstract: In this paper, I study many-to-one matching markets in a dynamic framework with the following features: Matching is irreversible, participants exogenously join the market over time, each agent is restricted by a quota, and agents are perfectly patient. A form of strategic behavior in such markets emerges: The side with many slots can manipulate the subsequent matching market in their favor via earlier matchings. In such a setting, a natural question arises: Is it possible to analyze a dynamic many-to-one matching market as if it were either a static many-to-one or a dynamic one-to-one market? First, I provide sufficient conditions under which the answer is yes. Second, I show that if these conditions are not met, then the early matchings are "inferior" to the subsequent matchings. Lastly, I extend the model to allow agents on one side to endogenously decide when to join the market. Using this extension, I provide a rationale for the small amount of unraveling observed in the United States (US) medical residency matching market compared to the US college-admissions system. Micro Finance Institutions (MFIs) are designed to improve the welfare of the poor. Group lending with joint liability is the standard contract used by these institutions. Such a contract performs two roles: it affects the composition of the groups that form, and determines the properties of risk-sharing among their members. Even though the literature suggests that groups consist of members with similar characteristics, there is evidence also of groups with heterogeneous agents. The underlying reason is that the literature lacked the risk-sharing behavior of the agents within a group. This paper develops a model of group lending where agents form groups, obtain capital from the MFI, and share risks among themselves. First, I show that joint liability introduces inefficiency for risk-averse agents. Moreover, the composition of the groups is not always homogeneous once risk-sharing is on the table. / Dissertation/Thesis / Doctoral Dissertation Economics 2020

The Grameen Bank has improved the lives of several million poor people in rural Bangladesh by providing them with credit. Using an innovative group lending program, the bank has been able to recover 97% of its loans. This dissertation is an attempt to understand the intricacies of the Grameen Bank's credit program and to throw light on those features of its innovative institutional set-up that make it so successful in recovering its loans. The dissertation is divided into six chapters and organized as follows. I first describe the institutional set-up of the Grameen Bank and its group lending program. I draw on material obtained from interviews with bank staff and borrowers during a field-trip to the Konokdia branch of the bank in Patuakhali. This is followed by an economic analysis of the bank's lending program. I analyze the multifaceted role of group lending in achieving the dramatically low default rates on loans. The emphasis is on isolating the specific ways in which the incentives created by the requirement to form groups affects group composition and the incentives for peer support, peer supervision, and loan repayment. Using a formal model, I analyze the effect of one specific feature of the Grameen Bank -- "staggered disbursement" -- on the expected loan recovery rate. In a two borrower model I show that when loan disbursement is staggered, the probability of loan recovery is higher when borrowers are linked together in a group than when there is no such group interlinkage. I analyze the implications of loan staggering on borrower welfare. The dissertation also includes an empirical analysis of the determinants of loan repayment in the Grameen Bank. Using panel data collected from a sample of Grameen Bank branches by the World Bank, I perform OLS, “fixed effects” and “random effects” regressions to examine the relationship between the variation in repayment rates across Grameen Bank branches and such variables as the average loan size, the proportion of loans to women and the distance of the branch from district headquarters. The results throw light on some of the theoretical issues raised in the earlier chapters. Chapter 6 concludes the dissertation. / Ph. D.

<p>Offering financial services to the unprivileged is a complex task and past attempts have been rather unsuccessful. One commendable effort that has sprung from the failures of commercial banks is microfinance and thanks to innovative ideas microfinance institutions have managed to cope with many of the challenges previously experienced by the formal bank sector in the 1970’s through the 90’s.</p><p>The “new” approach has successfully managed to overcome obstacles such as lack of collateral and information asymmetry. By using joint-liability schemes and by requiring frequent installments microfinance institutions have managed to reduce their risk exposure and by outsourcing the screening process to the borrowers they have dealt with the lack of information on their clients.</p><p>The purpose of this thesis is to investigate what microfinance institutions do that make them more suitable for delivering financial services to the poor. We will look at the supply driven efforts carried out in the past and see how they differ from the demand driven approach taken today.</p><p>We will evaluate some of the most common mechanisms of microfinance and assess their potential contribution to achieving the high repayment rates that many of these institutions obtain today.</p><p>The main finding is that group lending subject to social sanctions should improve the repayment rate. Other mechanisms that may enhance the performance are the use of dynamic incentives and regular repayment schedules. The effect of targeting women and social programs on repayment rates are ambiguous although their empowerment effect is notable.</p><p>By joining forces with NGOs, local authorities and the commercial financial sector microfinance has emerged as a viable poverty reduction tool alongside traditional aid.</p>

Offering financial services to the unprivileged is a complex task and past attempts have been rather unsuccessful. One commendable effort that has sprung from the failures of commercial banks is microfinance and thanks to innovative ideas microfinance institutions have managed to cope with many of the challenges previously experienced by the formal bank sector in the 1970’s through the 90’s. The “new” approach has successfully managed to overcome obstacles such as lack of collateral and information asymmetry. By using joint-liability schemes and by requiring frequent installments microfinance institutions have managed to reduce their risk exposure and by outsourcing the screening process to the borrowers they have dealt with the lack of information on their clients. The purpose of this thesis is to investigate what microfinance institutions do that make them more suitable for delivering financial services to the poor. We will look at the supply driven efforts carried out in the past and see how they differ from the demand driven approach taken today. We will evaluate some of the most common mechanisms of microfinance and assess their potential contribution to achieving the high repayment rates that many of these institutions obtain today. The main finding is that group lending subject to social sanctions should improve the repayment rate. Other mechanisms that may enhance the performance are the use of dynamic incentives and regular repayment schedules. The effect of targeting women and social programs on repayment rates are ambiguous although their empowerment effect is notable. By joining forces with NGOs, local authorities and the commercial financial sector microfinance has emerged as a viable poverty reduction tool alongside traditional aid.

Microfinance Performance and Social Capital: A Cross-country AnalysisThis paper investigates the relationship between the extent to which social capital formation is facilitated within different societies, and the financial and social performance of MFIs. We carry out a cross-country analysis on a dataset containing 100 countries. We identify different social dimensions that we use as proxies for how easy social capital can be developed in different countries, and we hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis. / Defining Social Collateral in Microfinance Group Lending: Microfinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. This paper provides a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. We take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. ties between group members). Our model stresses the impact of network configuration on the amount of social capital pledged as collateral. It shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral. / The Economic Value of Social Capital:Empirical studies on the importance of social capital for poor households show divergent outcomes. This divergence may stem from the lack of a conceptual framework for capturing the social capital dimensions that deliver economic value to individuals. This paper defines individual social capital from an economic perspective and proposes a measurement based on the two dimensions of individual social capital that bring economic value to individuals: (1) informal risk insurance arrangements and (2) information advantages that arise from personal social networks. Using this measurement, I present a numerical application to argue that differing network configurations drive asymmetry of social interactions among individuals. / Social Capital and the Repayment of Microfinance Group Lending: A Case Study of Pro Mujer Mexico:In this paper, we investigate how social networks of group borrowers come into play in joint liability group lending. We use a large, original dataset with 802 mapped social networks of borrowers from Pro Mujer Mexico. We are the first to examine external ties, that is, social ties with individuals outside the borrowing group. We have two main findings. First, borrowers with stronger informal risk insurance arrangements are in better economic shape and have a higher capacity to pay than borrowers with weaker informal risk insurance arrangements. Second, borrowers who pledge valuable ties as social collateral have fewer repayment problems. We postulate that borrowers receive effective help from their ties in cases of need. / Doctorat en Sciences économiques et de gestion / info:eu-repo/semantics/nonPublished

An insufficient financial market means that poor individuals cannot access financial capital, making it difficult for them to generate a stable income. Formal banks see these individuals as unreliable customers because of their financial background and see a risk that these potential customers will not repay their loans, which would put the bank at risk. Banks usually use the borrower’s assets as collateral for their loans. Unfortunately, not many of these poor people have any assets. Microloans can solve these problems by opening up the opportunity for financial capital that enables poor people to make the investments needed to create or develop some form of production and thus increase employment. This research was carried out to analyze if the collected variables can determine the repayment ability of those who got a microloan from the Amhara Credit and Savings institution. Since the borrowers received their loans through two different processes, this study divided the data into two groups. Group 1 received their microloan based on a personality test and the individuals in group 2 received their microloan based on group lending. This division is done in order to be able to eliminate that the lending process itself may have affected the repayment ability. This study is based on random sample data from the Amhara Credit and Savings institution. Regression analyses were performed using the STATA-15 software. The results are not entirely consistent with previous studies because some variables did not get the expected outcome linked similar to previous studies. Some of the variables in this study appear to have an effect on the repayment ability, but not all. Thus, the conclusion is that the results are insufficient and further research needs to be made to reject or confirm the influence of the socio-economic factors and structure of the microloan on the repayment ability for Ethiopian borrowers. / En otillräcklig finansmarknad innebär att fattiga individer inte kan få tillgång till finansiellt kapital vilket gör det svårt för dem att generera en stabil inkomst. Formella banker ser dessa individer som opålitliga kunder på grund av deras ekonomiska bakgrund och ser en risk med att dessa potentiella kunder inte kommer att återbetala sina lån, vilket skulle sätta banken i risk. Banker använder vanligtvis låntagarens tillgångar som säkerhet för sina lån. Tyvärr så har inte många av dessa fattiga människor några tillgångar. Mikrolån kan lösa dessa problem genom att öppna upp möjligheten för finansiellt kapital som gör det möjligt för fattiga människor att göra de investeringar som behövs för att skapa eller utveckla någon form av produktion och därmed öka sysselsättningen. Denna forskning genomfördes för att analysera om våra insamlade variabler kan förklara återbetalningsförmågan hos de som fick ett mikrolån från Amhara Credit and Savings Institution. Eftersom låntagarna fick lån genom två olika processer delade vi upp dem i grupp ett, som fick sitt mikrolån genom ett personlighetstest och grupp två, som fick sitt mikrolån via en grupp med andra individer. Detta för att kunna eliminera att själva processen till hur de har fått lånet kan ha påverkat återbetalningsförmågan. Studien är baserad på slumpmässiga provdata från Amhara Credit and Savings Institution. Regressionsanalyser utfördes med användning av Stata 15-programvaran. Resultaten är inte helt i överensstämmelse med tidigare studier, i och med att vissa variabler inte har det förväntade utfallet kopplat till tidigare studier. Några av variablerna i denna studie visar sig ha en påverkan på återbetalningsförmågan, men inte alla. Således är vår slutsats att resultaten är otillräckliga och behöver ytterligare undersökning för att kunna avvisa eller bekräfta denna uppsats variablers påverkan på återbetalningsförmågan.