Borrowers’ Participation in Group Borrowing

Ankur TUTLANI

Abstract


Abstract. Borrowers’ participation in MFI group lending credit market is not insured because of the alternative sources of credit available. The question arises what is the ideal MFI interest rate to ensure borrowers’ participation which at the same time being financially viable for MFI. The paper attempts to answer this question and analyzes the borrowers’ trade-off of borrowing from MFI or from moneylender (ML). Results show that borrowers may find comparative advantage in borrowing individually from ML as compared to borrowing in a group from MFI if the transaction cost burden is high and their credit requirement is low.

Keywords. Microfinance, Group lending, Informal finance, Transaction cost, Effective cost.

JEL. G21, O16, O17.

Keywords


Microfinance; Group lending; Informal finance; Transaction cost; Effective cost.

Full Text:


References


Aghion, B.A. (1999). On the design of a credit agreement with peer monitoring, Journal of Development Economics, 60(1), 79-104. doi. 10.1016/S0304-3878(99)00037-1

Aghion, B.A., & Gollier, C. (2000). Peer group formation in an adverse selection model, The Economic Journal, 110(465): 632-643. doi. 10.1111/1468-0297.00557

Ahlin, C. (2013). The role of group size in group lending, Working paper, Michigan State University.

Ahmed, Z.A. (1989). Effective cost of rural loans in Bangladesh, World Development, 17(3), 357-363. doi. 10.1016/0305-750X(89)90209-X

Banerjee, A.V., & Duflo, E. (2010). Giving credit where it is due, Journal of Economic Perspectives, 24(3), 61-80. doi. 10.1257/jep.24.3.61

Besley, T., & Coate, S. (1995). Group lending, repayment incentives and social collateral, Journal of Development Economics, 46(1), 1-18. doi. 10.1016/0304-3878(94)00045-E

Bhatt, N., & Tang, S.Y. (1998). The problem of transaction costs in group-based micro lending: An institutional perspective, World Development, 26(4), 623-637. doi. 10.1016/S0305-750X(98)00007-2

Bhatt, N., & Tang, S.Y. (2001). Designing group-based microfinance programs: Some theoretical and policy considerations, International Journal of Public Administration, 24(10), 1103-1125. doi. 10.1081/PAD-100105104

Bose, P. (1998), ‘Formal-informal sector interaction in rural credit markets’, Journal of Development Economics, 56: 265-280.

Chung, I. (1995). Market choice and effective demand for credit: Roles of borrower transaction costs and rationing constraint, Journal of Economic Development,20(2), 23-44.

Dehem,T., & Hudon, M. (2013). Microfinance from the clients’ perspective: An empirical enquiry into transaction costs in urban and rural India, Oxford Development Studies, 41(1), S117-S132. doi. 10.1080/13600818.2013.787057

Field, E., & Pande, R. (2008). Repayment frequency and default in microfinance: Evidence from India, Journal of the European Economic Association, 6(2-3), 501-509. doi. 10.1162/JEEA.2008.6.2-3.501

Ghatak, M. (1999). Group lending, local information and peer selection, Journal of Development Economics, 60(1), 27-50. doi. 10.1016/S0304-3878(99)00035-8

Gine, X. (2011). Access to capital in rural Thailand: An estimated model of formal vs. informal credit, Journal of Development Economics, 96(1), 16-29. doi. 10.1016/j.jdeveco.2010.07.001

Jain, S. (1999). Symbiosis vs. crowding-out: The interaction of formal and informal credit markets in developing countries, Journal of Development Economics, 59(2), 419-444. doi. 10.1016/S0304-3878(99)00019-X

Jain, S., & Mansuri, G. (2003). A little at a time: The use of regularly scheduled repayments in microfinance programs, Journal of Development Economics, 72(1), 253-279. doi. 10.1016/S0304-3878(03)00076-2

Karduck, S., & Seibel, H.D. (2004). Transaction costs of self-help groups: A study of NABARD’s SHG banking programme in India, [accessed October 10, 2015].

Kim, N. H. (n.d.), Constrained optimization, http://www2.mae.ufl.edu/nkim/eas6939/ConstrainedOpt.pdf, [accessed October 25, 2015].

Laureti, C. (2012). Flexibility and payment discipline in microfinance, Manuscript, Belgium: Université de Mons and UniversitéLibre de Bruxelles.

Pal, S. (2002). Household sectoral choice and effective demand for rural credit in India, Applied Economics, 34(14), 1743-1755. doi. 10.1080/00036840210121228

Pradhan, N.C. (2013). Persistence of informal credit in rural India: Evidence from ‘All-India Debt and Investment Survey’ and beyond, Working paper, WPS(DEPR)- 05/2013: RBI

Shankar, S (2007). Transaction costs in group microcredit in India’, Management Decision, 45(8), 1331-1342. doi. 10.1108/00251740710819069

Stiglitz, J.E. (1990). Peer monitoring and credit markets, The World Bank Economic Review, 4(3), 351-366.




DOI: http://dx.doi.org/10.1453/ter.v3i1.673

Refbacks

  • There are currently no refbacks.


Bookmark and Share


.......................................................................................................................................................................................................................................................................................................................................

Turkish Economic Review - Turk. Econ. Rev. - TER - www.kspjournals.org

ISSN: 2149-0414

Editor: ter@ksplibrary.org   Secretarial: secretarial@ksplibrary.org   Istanbul - Turkey.

Copyright © KSP Library