Group loans and joint and several liability as a basis for microfinance
Journal Title: Zarządzanie i Finanse - Year 2013, Vol 11, Issue 2
Abstract
The poor, socially and financially excluded, many times without a collateral shall be rejected by commercial banks. One way to integrate them into society are microfinance, treated as financial services for the poor. As part of its microfinance activity institutions provide loans to the poor on the principles of shared responsibility. The essence is to create groups in which members help, supervise and motivate each other. The ruling in groups of joint and several liability is a kind of collateral, so that many poor people (mostly women) can benefit from microloans. The advantage of this form of financing is also reducing the credit market imperfections such as asymmetric information, before conclusion of the contract, as well as after it, and transaction costs. But in addition to the advantages of group loans are characterized by certain disadvantages, such as the costs of reaching the weekly meeting, the likelihood of collusion in the group. Despite the group loans for many are often the only source of capital. If for wealthier clients are used in individual contracts, in the case of the poorest, with remote areas, the best way of financing are group loans.
Authors and Affiliations
Przemysław Pluskota
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