Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment

Microfinance, the provision of small individual and business loans, has experienced dramatic growth, reaching over 150 million borrowers worldwide. Much of the success of microfinance has been attributed to attempts to overcome the challenges of information asymmetries in uncollateralized lending. H...

Full description

Bibliographic Details
Main Authors:	Carpena, Fenella, Cole, Shawn, Shapiro, Jeremy, Zia, Bilal
Format:	Journal Article
Language:	en_US
Published:	Oxford University Press on behalf of the World Bank 2015
Subjects:	borrower collateral income inequality information asymetry microcredit microfinance creditor optimal contract
Online Access:	http://hdl.handle.net/10986/21616

id	okr-10986-21616
recordtype	oai_dc
spelling	okr-10986-216162021-04-23T14:04:03Z Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment Carpena, Fenella Cole, Shawn Shapiro, Jeremy Zia, Bilal borrower collateral income inequality information asymetry microcredit microfinance creditor optimal contract Microfinance, the provision of small individual and business loans, has experienced dramatic growth, reaching over 150 million borrowers worldwide. Much of the success of microfinance has been attributed to attempts to overcome the challenges of information asymmetries in uncollateralized lending. However, very little is known about the optimal contract structure of these loans; and there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, the required monthly loan installments are 11 percent less likely to be missed under the group liability setting in comparison with individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts. 2015-03-18T21:34:44Z 2015-03-18T21:34:44Z 2013-09 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/21616 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Oxford University Press on behalf of the World Bank Publications & Research Publications & Research :: Journal Article South Asia India
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	borrower collateral income inequality information asymetry microcredit microfinance creditor optimal contract
spellingShingle	borrower collateral income inequality information asymetry microcredit microfinance creditor optimal contract Carpena, Fenella Cole, Shawn Shapiro, Jeremy Zia, Bilal Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
geographic_facet	South Asia India
description	Microfinance, the provision of small individual and business loans, has experienced dramatic growth, reaching over 150 million borrowers worldwide. Much of the success of microfinance has been attributed to attempts to overcome the challenges of information asymmetries in uncollateralized lending. However, very little is known about the optimal contract structure of these loans; and there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, the required monthly loan installments are 11 percent less likely to be missed under the group liability setting in comparison with individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts.
format	Journal Article
author	Carpena, Fenella Cole, Shawn Shapiro, Jeremy Zia, Bilal
author_facet	Carpena, Fenella Cole, Shawn Shapiro, Jeremy Zia, Bilal
author_sort	Carpena, Fenella
title	Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
title_short	Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
title_full	Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
title_fullStr	Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
title_full_unstemmed	Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment
title_sort	liability structure in small-scale finance : evidence from a natural experiment
publisher	Oxford University Press on behalf of the World Bank
publishDate	2015
url	http://hdl.handle.net/10986/21616
_version_	1764448779061166080

Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment

Similar Items