Building an honest microfinance organization: Embezzlement and the optimality of rigid repayment schedules and joint liability

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Jeon, Doh-Shin; Menicucci, Domenico. Building an honest microfinance organization: Embezzlement and the optimality of rigid repayment schedules and joint liability. 2006
http://hdl.handle.net/10230/707
To cite or link this document: http://hdl.handle.net/10230/707
dc.contributor.author Jeon, Doh-Shin
dc.contributor.author Menicucci, Domenico
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2006-01-01
dc.identifier.uri http://hdl.handle.net/10230/707
dc.description.abstract We consider the agency problem of a staff member managing microfinancing programs, who can abuse his discretion to embezzle borrowers' repayments. The fact that most borrowers of microfinancing programs are illiterate and live in rural areas where transportation costs are very high make staff's embezzlement particularly relevant as is documented by Mknelly and Kevane (2002). We study the trade-off between the optimal rigid lending contract and the optimal discretionary one and find that a rigid contract is optimal when the audit cost is larger than gains from insurance. Our analysis explains rigid repayment schedules used by the Grameen bank as an optimal response to the bank staff's agency problem. Joint liability reduces borrowers' burden of respecting the rigid repayment schedules by providing them with partial insurance. However, the same insurance can be provided by borrowers themselves under individual liability through a side-contract.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 893
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Building an honest microfinance organization: Embezzlement and the optimality of rigid repayment schedules and joint liability
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2014-06-03T07:14:15Z
dc.subject.keyword Microeconomics
dc.subject.keyword microfinance
dc.subject.keyword group lending
dc.subject.keyword joint liability
dc.subject.keyword embezzlement
dc.subject.keyword hierarchy
dc.subject.keyword contract
dc.rights.accessRights info:eu-repo/semantics/openAccess


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