Year: 1999
Author: Kritikos, Alexander S.
Credit and Capital Markets – Kredit und Kapital, Vol. 32 (1999), Iss. 3 : pp. 393–425
Abstract
Small-scale Lendings with Incentive-guided Solidarity Action
A Discussion about the Conditions at the Base of Loan Collateral Substitutes
In credit markets, the problems of adverse selection and moral hazard result in credit rationing. This means that persons having no property to submit as loan collateral have no access to the ordinary credit markets precisely for this reason. Institutionalising incentive-guided solidarity action on a mutual basis between groups of borrowers may qualify as loan collateral substitute in the eyes of banks if borrowers are sufficiently poor. This contract design allows part of the risk and the associated lending costs to be shifted to the borrowers. This type of business is profitable if the business relationship between the bank and its borrowers is standardised, if it is long-term in nature and if a minimum number of borrowers is involved.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.32.3.393
Credit and Capital Markets – Kredit und Kapital, Vol. 32 (1999), Iss. 3 : pp. 393–425
Published online: 1999-03
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 33
Author Details
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