Group lending as a mechanism for self-insuring default risk

Andreas Krause

doi:10.1007/s10436-024-00447-4

Group lending as a mechanism for self-insuring default risk

Research output: Contribution to journal › Article › peer-review

Abstract

We show that banks can provide loans at low costs to high-risk borrowers in the form of a group lending contract in which all members are jointly liable for their loans. By providing such contracts borrowers self-insure against some of the default risk the bank faces. We determine the optimal group size in a competitive banking system and find that it is reasonably small and borrowers internalize an increasing fraction of the risk the higher their risks are.

Original language	English
Journal	Annals of Finance
Early online date	28 Jul 2024
DOIs	https://doi.org/10.1007/s10436-024-00447-4
Publication status	E-pub ahead of print - 28 Jul 2024

Data Availability Statement

Data sharing is not applicable to this article as no new data were created or analyzed in this study.

Keywords

D82
G21
Group lending
Joint liability
Microfinance
O16
Self-insurance

ASJC Scopus subject areas

Finance
General Economics,Econometrics and Finance

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1007/s10436-024-00447-4Licence: CC BY

Cite this

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KW - Microfinance

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Group lending as a mechanism for self-insuring default risk

Abstract

Data Availability Statement

Keywords

ASJC Scopus subject areas

UN SDGs

Access to Document

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