Sameer is a farmer who subsists on three acres in rural India. While much of the land is fertile, nearly 50% of his income goes towards just the interest payments from money-lender loans, loans which are necessary to finance the crops he plants. Moreover, some of his land is unused because he cannot profitably finance irrigation at the money-lender’s rates (5 to 10% per month). As a result, his...

Micro…nance is typically associated with joint liability of group members. However, a large part of micro…nance institutions rather o¤ers individual instead of group loans. We analyze the incentive mechanisms in both individual and group contracts. Moreover, we show that micro…nance institutions o¤er group loans when the loan size is rather large, re…nancing costs are high, and competition betw...

The federal government supports some private activities—such as home ownership, postsecondary education, and certain commercial ventures—through credit assistance offered to individuals and businesses. Some of that assistance is in the form of direct federal loans, and some is through federal guarantees of loans made by private financial institutions. At the end of fiscal year 2011, about $2.7 ...

We consider a banking model in which firms’ access to credit is constrained due to the banks’ limited risk-bearing capacities. We show that such constraints may be relaxed by allowing banks to transfer risks to outside investors. However, the market for credit risk transfer (CRT) works smoothly only if loans are based on hard, i. e., verifiable information. In contrast, the market for CRT eithe...

This study examines the market’s reaction to announcements of additions to the Loan Loss Reserve (LLR) account resulting from diverse problems in a bank’s loan portfolio which are unrelated to an international debt crisis. For the overall sample, with no division by type of loan, the reaction to an increase in LLRs is negative and statistically significant before the announcement; however, it t...