Carpena, FenellaCole, ShawnShapiro, JeremyZia, Bilal2012-03-192012-03-192010-09-01https://hdl.handle.net/10986/3910Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans -- there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. The analysis finds compelling evidence that contract structure matters: for the same borrower, required monthly loan installments are 6 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 19 percent less likely to be missed under group liability contracts.CC BY 3.0 IGOACCESS TO FINANCIAL SERVICESACCOUNTINGASSETSBAD CLIENTSBANK ACCESSBANKING MARKETBANKING SECTORBANKING SERVICESBIASESBORROWERBORROWER PERFORMANCEBORROWER WELFAREBORROWINGBRANCHBRANCHESBUSINESS LOANSCAPITAL ACCUMULATIONCLAIMCOLLATERALCOMMERCIAL BANKSCOMPANYCOMPULSORY DEPOSITCOMPULSORY DEPOSITSCOOPERATIVE SOCIETIESCREDIT AGREEMENTCREDIT COOPERATIVECREDIT COOPERATIVESCREDIT MARKETCREDIT MARKETSCREDIT PROGRAMCREDIT PROGRAMSDEBTDEBT REPAYMENTSDEBTSDEFAULT RATEDEFAULT RATESDEFAULTERDEFAULTERSDEFAULTSDELINQUENCY RATEDEPENDENTDEPOSITDISBURSEMENTDUMMY VARIABLEEMERGING MARKETSENTREPRENEURSENTREPRENEURSHIPEVENT OF DEFAULTEXPENDITUREFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SERVICESFINANCIAL SUPPORTFIRM SIZEFIRST LOANFIRST-TIME BORROWERSGROUP BORROWERGROUP BORROWERSGROUP CREDITGROUP LENDINGGROUP LOANGROUP REPAYMENTGUARANTORGUARANTORSHOUSEHOLDSINCOME INEQUALITYINDIVIDUAL LIABILITYINDIVIDUAL LOANINDIVIDUAL LOANSINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINITIAL PUBLIC OFFERINGSINSTALLMENTINSTALLMENTSINSURANCEINSURANCE MECHANISMSINTEREST PAYMENTSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINVESTMENT CHOICEINVESTMENT PROJECTSJOINT LIABILITYJOINT LIABILITY CLAUSELACK OF ACCESSLEGAL CONSTRAINTSLENDERLENDERSLENDING POLICIESLENDING PORTFOLIOLIABILITYLIABILITY STRUCTURELIABILITY STRUCTURESLIQUIDATIONLIQUIDITYLOANLOAN AMOUNTLOAN AMOUNTSLOAN APPLICANTLOAN CLIENTLOAN CLIENTSLOAN CONTRACTLOAN CONTRACTSLOAN DATALOAN DISBURSEMENTLOAN OFFICERSLOAN PERFORMANCELOAN PORTFOLIOLOAN PRODUCTLOAN PRODUCTSLOAN REPAYMENTLOAN REPAYMENTSLOAN TERMLOAN TERMSMARKET FAILURESMARKET STRUCTUREMATURITYMATURITY DATESMEDIUM ENTERPRISEMFIMFISMICROCREDITMICROFINANCEMICROFINANCE CLIENTSMICROFINANCE INSTITUTIONMICROFINANCE ORGANIZATIONSMICROFINANCE PRACTITIONERSMICROFINANCE PROGRAMMICROFINANCE PROGRAMSMINIMUM BALANCEMORAL HAZARDOPTIMAL CONTRACTOUTSTANDING LOANSPENALTIESPHYSICAL CAPITALPOLITICAL ECONOMYPREPAYMENTSPROVISION OF CREDITREPAYMENTREPAYMENT BEHAVIORREPAYMENT DISCIPLINEREPAYMENT INCENTIVESREPAYMENT PERFORMANCEREPAYMENT RATESREPAYMENT SCHEDULESRESERVESRISK SHARINGRISK TAKINGRISKY BORROWERSSALARIESSAVINGSSAVINGS ACCOUNTSAVINGS ACCOUNTSSAVINGS DEPOSITSAVINGS DEPOSITSSAVINGS GROUPSSAVINGS PORTFOLIOSAVINGS PRODUCTSSAVINGS SERVICESSECOND LOANSMALL FIRMSSOCIAL CAPITALSOCIAL COLLATERALSUBSIDIZATIONTRANSACTIONTRANSACTION COSTSURBAN AREASVILLAGEWAGESWITHDRAWALWORKING CAPITALWorld Bank10.1596/1813-9450-5427