Group lending

The group lending generally referred to agreements between individuals who no deposit own and form a group to loans from creditors to obtain. Group loans are granted either to a group or to individual group members, just as the loan liability can be joint ( joint liability approach ) or individual.

The group loan plays a special role as microcredit in microfinance . Variations of the group loan exist in the form of solidarity groups (BancoSol) or village banks .

history

Older group credit systems such as the “classic” model of the Grameen Bank share the principle of group responsibility in conjunction with regular group meetings. Although the Grameen Bank now rejects the joint loan liability approach and BancoSol has also largely turned away from it, it is still used by the BRAC , especially with poor customers. The Grameen Bank has, however, maintained the practice of regular group meetings.

methodology

While other models of group lending exist, the “classic” model of the Grameen Bank can still be viewed as a methodological archetype of group lending and is described below:

After Grameen Bank's first loans to individuals with no group responsibility clause in the 1970s and groups were formed only to generate economies of scale , the Grameen Bank quickly realized that group formation could be used to reduce the cost of screening , surveillance and the Significantly reduce the cost of collecting payments. For this purpose, the bank developed the following methodology on the basis of a four to six week cycle:

• Granting partial credits to two members of a group of five;
• Allocation of partial credits to two other members of the group if the credits are repaid;
• Granting of the last partial loan to the group chairman if all previous loans have been repaid.

While the groups were initially viewed as a source of mutual aid, formal sanction systems gradually evolved, e.g. B. an exclusion of future lending to all members of a due group. Typically, after successful repayment, borrowers are offered the opportunity to take out a larger loan in the next pay cycle, which can lead to considerable loan amounts over time.

Asymmetrical information

The group loan plays a central role in dealing with a major problem in microfinance, namely the asymmetrical distribution of information between creditor and debtor, by combating adverse selection and alleviating moral hazard.

Adverse selection

The problem of adverse selection arises when creditors cannot distinguish between inherently high risk borrowers and low risk borrowers. This results in a situation in which low-risk borrowers are deterred from taking out loans. In principle, group lending in connection with joint liability can reduce this inefficiency, even without group members following the incentive to compensate for the information asymmetry between creditor and debtor by signaling . Independent group formation plays a key role here, as it enables potential debtors to use their knowledge in order to find the best possible partners; this ultimately leads to the formation of groups that are relatively homogeneous with regard to the individual risk of the group members ( assortative matching ). With regard to lending, this results in a risk transfer from the bank to the high-risk debtors. Since banks are now better protected against default, the average interest rates for both high-risk and low-risk borrowers are also falling, which in turn creates an incentive for low-risk borrowers to take out loans.

Moral hazard

Since it is difficult for the creditor to monitor the debtor's actions, the problem of moral hazard arises after the loan is granted. Group lending with shared responsibility can be used to mitigate moral hazard problems. A distinction is made between ex ante moral hazard and ex post moral hazard . Group loan agreements circumvent ex ante moral hazard by causing borrowers to oversee each other's project choices and penalizing borrowers who choose excessively risky projects. The fact that group members are affected by the actions of other group members means that they will take steps to punish anyone who tries too little and thus puts the group at undue risk. Ex post moral hazard, on the other hand, can be reduced through group lending if peer monitoring is used, in which every group member is made to incur monitoring costs of k in order to check the actual return on their colleagues' returns.

Empiricism

In practice, some empirical evidence supports the theory of group lending, while others suggest tensions and limitations in the group lending approach.

criticism

Based on the mixed empirical results, criticism of the group lending approach has developed in the specialist literature. One point of criticism is that the use of social sanctions has limits. Further criticism relates to the group meetings that are central to group lending: It is criticized that the participation and monitoring of group members can be very costly, that the transfer of obligations from banks to customers, which is characteristic of group lending, entails hidden costs and additional risks and that borrowers could, under certain conditions, secretly cooperate against the bank and undermine the bank's ability to use a “social security”. It is also questioned whether the group loan is really the optimal solution for the micro-lender . A final group of criticisms relates to the efficiency of group lending and includes suggestions for improving and modifying the classic model of lending; the fact that, among other things, the Grameen Bank itself has modified its classic model of group lending in order to gain flexibility, gives this criticism particular weight.

See also

• ROSCA

literature

• Armendariz, Beatriz, Jonathan Morduch (2010): The Economics of Microfinance , 2nd edition, MIT Press.

Individual evidence

1. ↑ Armendariz, Beatriz, Jonathan Morduch (2010): The Economics of Microfinance , MIT Press, p. 97.
2. ^ Cull, Robert, Asli Demirgüc-Kunt, Jonathan Morduch (2009): Microfinance meets the market. , Journal of Economic Perspectives, Vol. 23, No. 1, pp. 167-192.
3. ↑ Varian, Hal (1990): Monitoring agents with other agents , in: Journal of Institutional and Theoretical Economics, Vol. 146, pp. 153-174.
4. ^ Stiglitz, Joseph (1990): Peer Monitoring and credit markets. , in: World Bank Economic Review, Vol. 4, No. 3, pp. 219-256.
5. ^ Laffont, Jean Jacques, Patrick Rey (2003): Moral hazard, collusion and group lending , IDEI Working Paper 122.
6. ↑ Armendariz, Beatriz (1999): On the design of a credit agreement with peer monitoring , in: Journal of Development Economics, Vol. 60, pp. 79-104.
7. ↑ Armendariz, Beatriz, Jonathan Morduch (2010): ibid, p. 112.
8. ↑ Park, Albert, Changqing Ren (2001): Microfinance with Chinese characteristics. , in: World Development, Vol. 29, No. 1, pp. 39-62.
9. ↑ Giné, Xavier et al. (2009): Microfinance games. , World Bank Working Paper.
10. ^ Rai, Ashok, Tomas Sjöström (2004): Is Grameen lending efficient? Repayment incentives and insurance in village economies. , in: Review of Economic Studies, Vol. 71, No. 1, pp. 217-24.
11. ^ Yunus, Muhammad (2002): Grameen Bank II: Designed to open new possibilities. , Dhaka: Grameen Bank (English). ( Memento of the original from October 15, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.