Group credit: A means to improve information transfer and loan repayment performance

Information asymmetries plague credit markets in developing countries, leading to selective rationing and market segmentation with adverse income distributional consequences for small borrowers. Data collected from the FINCA group credit programme in Costa Rica were used to study the viability and cost effectiveness of group credit as a means to transmit information on borrower creditworthiness. Groups that screened members and used local information had lower delinquency rates than those that did not. However, less than half the groups had positive rates of economic return, suggesting that group lending may improve information flow but is a cost‐sensitive institutional design.

[1]  Joseph E. Stiglitz,et al.  Peer Monitoring and Credit Markets , 1990 .

[2]  Irfan Aleem.  Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan , 1990 .

[3]  Gershon Feder,et al.  The role of groups and credit cooperatives in rural lending , 1990 .

[4]  E. Ziegel.  Introduction to the Theory and Practice of Econometrics , 1989 .

[5]  F. Iqbal.  The determinants of moneylender interest rates: Evidence from rural India , 1988 .

[6]  M. Carter.  Equilibrium credit rationing of small farm agriculture , 1988 .

[7]  K. Spremann,et al.  Agency Theory, Information and Incentives , 1987 .

[8]  J. Guasch,et al.  Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory , 1986 .

[9]  Michael Bratton.  Financing smallholder production: A comparison of individual and group credit schemes in Zimbabwe , 1986 .

[10]  P. Schmidt,et al.  Limited-Dependent and Qualitative Variables in Econometrics. , 1984 .

[11]  J. Stiglitz,et al.  Incentive Effects of Terminations: Applications to the Credit and Labor Markets , 1983 .

[12]  G. Maddala.  Limited-dependent and qualitative variables in econometrics: Introduction , 1983 .

[13]  David M. Kreps,et al.  Reputation and imperfect information , 1982 .

[14]  J. D. Hess,et al.  Risk and the gain from information , 1982 .

[15]  W. Schaefer-Kehnert.  AGRICULTURAL CREDIT POLICY IN DEVELOPING COUNTRIES , 1982 .

[16]  D. W. Adams,et al.  A critique of traditional agricultural credit projects and policies , 1981 .

[17]  J. Dillon,et al.  Agricultural Decision Analysis , 1977 .

[18]  A. Bottomley.  Interest Rate Determination in Underdeveloped Rural Areas , 1975 .

[19]  D. W. Adams.  Agricultural Credit in Latin America: A Critical Review of External Funding Policy , 1971 .

[20]  M. Spoor.  Agricultural Credit Policy , 1995 .

[21]  M. Wenner.  Signaling of creditworthiness in rural credit markets: an analysis of group lending in Costa Rica. , 1990 .

[22]  Muhammad Yunus,et al.  Group-based savings and credit for the rural poor , 1986 .

[23]  Helmut Bester,et al.  Screening vs. Rationing in Credit Markets with Imperfect Information , 1985 .

[24]  B. M. Desai.  Group lending innovation for rural areas : a pilot study , 1982 .

[25]  J. Stiglitz,et al.  Credit Rationing in Markets with Imperfect Information , 1981 .

[26]  J. Riley.  Information, Screening and Human Capital , 1976 .

[27]  David E. Kaun,et al.  Marketing Signaling: Informational Transfer in Hiring and Related Screening Processes. , 1974 .