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On the Viability of Group Lending when Microfinance Meets the Market: A Reconsideration of the Besley--Coate Model

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Arnold, Lutz G. ; Reeder, Johannes ; Steger, Susanne
License: Allianz- bzw. Nationallizenz
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Date of publication of this fulltext: 26 Aug 2016 12:53


Besley and Coate (1995) analyse the impact of joint liability and social sanctions on repayment rates when repayment enforcement is imperfect. Motivated by the microfinance industry’s move towards markets, we conduct an equilibrium analysis of the Besley–Coate model. We find that individual loan contracts may be used in market equilibrium, even though group lending entails the higher repayment ...


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