nep-mfd New Economics Papers
on Microfinance
Issue of 2009‒05‒09
three papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Choice Between Microfinance System Operating on the Basis of Individual Liability Loan Contract or Through Joint Liability Loan Contract By Kundu, Amit
  2. Moral Hazard and Capital Requirements in a Lending Model of Credit Denial By Eric Van Tassel
  3. Market Solutions in Poverty: The Role of Microcredit in Development Countries with Financial Restrictions By Mário Olivares; Sofia Santos

  1. By: Kundu, Amit
    Abstract: In this paper we consider that a representative of a not so affluent rural household has three options. He (she) may join in a microfinance system operating on the basis of individual liability credit contract, or on the basis of joint liability loan contract through forming self-help group or may not participate in any type of microfinance system. This paper establishes that wealthier among the not so affluent rural household prefers to join microfinance system operating on the basis of individual liability loan contract, comparatively less wealthy prefers to join microfinance system operating on the basis of joint liability loan contract and ultra poor is less likely to join any type of microfinance system. This paper establishes that a household with high dependency ratio and higher intra-household decision making power of the head of the women of that household also influences the household to join microfinance system and in both the situations the probability of joining microfinance system operating on the basis of joint liability loan contract is slightly higher. It is also established that microfinance system fails to solve the ageing problem in rural areas because aged persons are less prone to join in any type of microfinance system.
    Keywords: Microfinance; Individual liability; Joint Liability
    JEL: D10 A10 C21 G21
    Date: 2009–05–05
  2. By: Eric Van Tassel
    Abstract: In this paper we analyze a repeated game in which an intermediary offers unsecured loans to entrepreneurs using future credit denial to induce repayment. To finance the loans, the intermediary uses a combination of equity capital and external funds. We focus on a moral hazard problem that emerges between the intermediary and the less informed external investors over a costly loan monitoring choice. The presence of informed borrowers in the lender’s portfolio turns out to act as a substitute for capital requirements. The result is that the lending strategy utilized by the intermediary minimizes the moral hazard problem but implies the intermediary’s balance sheet is fragile to exogenous risk.
    Keywords: Moral hazard; Capital requirements; Bank regulation; Repayment incentives
    JEL: G21 G28 O16
    Date: 2009–05
  3. By: Mário Olivares; Sofia Santos
    Abstract: The creation of credit markets in poor countries is a crucial factor for their development. If well put into practice, people would be able to improve their quality of life. With the suitable support they will become educated and that will allow them to enlarge their business, to think by themselves and to appreciate that they have rights. Microfinance has seen great changes in the last 50 years and has become visibly known due to the success of some occurrence in developing countries and more recently in Europe through a number of schemes that have been implemented solving this key issue. In this article we discuss this experience, we evaluate the economic theory of microfinance and propose a alternative model. We conclude that microcredit can be see as a new approach in developing policies or as a scheme against unemployment.
    Keywords: microfinance, microcredit, rate of interest, development, poverty, money.
    JEL: D7 D8 G19 O23
    Date: 2009–03

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