Discussion Papers in Economics

Planning Unit, Indian Statistical Institute, Delhi

#06-01:

"Group-lending with Sequential Financing,Contingent Renewal and Social Capital."
By Prabal Roy Chowdhury

Abstract

This paper focuses on the dynamic aspects of group-lending, in particular sequential financing and contingent renewal. We examine the ecacy of these two schemes in harnessing social capital. We find that, for the appropriate parameter configurations, there is homogenous group-formation so that the lender can ascertain the identity of a group without lending to all its members, thus screening out bad borrowers partially. Moreover, under certain parameter configurations, negative assortative matching occurs as a robust phenomenon.

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