The Problem of Transaction Costs in Group-Based Microlending: An Institutional Perspective

Publication Date: 1998
Published by: Amsterdam, Netherlands: Elsevier Science Ltd
Document Type: Journal Article

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What accounts for the financial viability of group-based lending?

Looks at the determinants and consequences of transaction costs in loan disbursement. Uses a bottom-up approach that focuses on economising transaction costs as a critical element towards increased efficiency and viability of group lending programmes.

Argues that group lending programmes vary in their transaction cost characteristics depending on their specific credit delivery arrangements and social context. Illustrates these arguments by examining the challenges faced by various group lending programmes worldwide. It also examines how social capital, or the lack of it, affects the transaction costs and operations of three typical group lending arrangements - group loan with joint liability, individual loan with joint liability and individual loan with individual liability.

Concludes that, in order to be financially viable, group-based microlending needs to economize on transaction costs for both lenders and borrowers [Author]