Cosigned vs. group loans

Bond, Philip; Ashok, S.

doi:10.1016/j.jdeveco.2006.05.006

Cited by 32 publications

(16 citation statements)

References 15 publications

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“…Besley andCoate, 1995, Fafchamps andLund, 2003). Guarantees are embedded in the lending process in various forms, such as group lending where all group members serve as guarantors or cosigned lending where the specific cosigners serve as guarantors (Bond and Rai, 2008). Guarantees do not only shield the lender but they may also impact the behavior of the borrower (Klonner and Rai, 2010).…”

Section: Empirical Literaturementioning

confidence: 99%

Collateral and its substitutes in emerging markets’ lending

Menkhoff

Neuberger

Rungruxsirivorn

2012

Journal of Banking & Finance

118

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Collateral and its Substitutes in Emerging Markets' Lending Abstract Due to opaque information and weak enforcement in emerging loan markets, the need for collateral is high, whereas borrowers lack adequate assets to pledge as collateral. How is this puzzle solved? We find for a representative sample from Northeast Thailand that indeed most loans do not include any tangible assets as collateral. Instead, lenders enforce collateral-free loans through third-party guarantees and relationship lending, but also through modifying loan terms, such as reducing loan size. Guarantees are the relatively most important substitute, they reduce collateral requirements independently of relationship lending and they are more often used by formal financial institutions. Terms of use: Documents in EconStor mayJEL-Code: G210, O160.

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Section: Empirical Literaturementioning

confidence: 99%

Collateral and its substitutes in emerging markets’ lending

Menkhoff

Neuberger

Rungruxsirivorn

2012

Journal of Banking & Finance

118

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“…It has been observed that under some circumstances cosigning mechanisms have advantages compared to more consolidated forms of guarantees traditionally adopted by group-based micro-lending. Bond and Ray (2008), for example, find that cosigned loans are preferred to group lending when the power of imposing sanctions is unequal among individuals.…”

Section: Introductionmentioning

confidence: 99%

The Role of Borrower-Cosigner Kinship Relations on Loan Default

Pellegrina

Scollo²

2016

Ital Econ J

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Using data from a leading Italian microfinance provider we investigate the effect of kinship relations between borrowers and cosigners on loan defaults. We address causality issues using an instrumental variable built on the exogenous rule imposed by the lender that requires personal guarantees for loans exceeding e 5000. Results show that the presence of closely related cosigners tends to reduce defaults. We find that this is the result of a possible combined effect of both stronger solidarity and more effective psychological pressure exerted by relatives compared to other categories of cosigners.

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“…Peer intermediation has also been analyzed in a large theoretical literature on optimal mechanism design in the face of different asymmetric information problems (e.g. , Varian 1990, Stiglitz 1990, Banerjee et al 1994, Besley and Coate 1995, Ghatak 1999, Ghatak and Guinnane 1999, Rai and Sjöström 2004, and Bond and Rai 2008.…”

Section: Introductionmentioning

confidence: 99%

Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

Bryan

Karlan

Zinman

2015

American Economic Journal: Microeconomics

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Empirical evidence on peer intermediation lags behind many years of lending practice and a large body of theory in which lenders use peers to mitigate adverse selection and moral hazard.Using a simple referral incentive mechanism under individual liability, we develop and implement a two-stage field experiment that permits separate identification of peer screening and enforcement effects. We allow for borrower heterogeneity in both ex-ante repayment type and ex-post susceptibility to social pressure. Our key contribution is how we deal with the interaction between these two sources of asymmetric information. Our method allows us to identify selection on the likelihood of repayment, selection on the susceptibility to social pressure, and loan enforcement. We estimate peer effects on loan repayment in our setting, and find no evidence of screening (albeit with an imprecisely estimated zero) and large effects on enforcement.We then discuss the potential utility and portability of the methodological innovation, for both science and for practice. JEL Codes:

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Cosigned vs. group loans

Cited by 32 publications

References 15 publications

Collateral and its substitutes in emerging markets’ lending

Collateral and its substitutes in emerging markets’ lending

The Role of Borrower-Cosigner Kinship Relations on Loan Default

Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

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