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Does Subsidising the Cost of Capital Really Help the Poorest? An Analysis of Saving Opportunities in Group-Lending

Aniket, K; (2007) Does Subsidising the Cost of Capital Really Help the Poorest? An Analysis of Saving Opportunities in Group-Lending. (ESE Discussion Papers 140). School of Economics, the University of Edinburgh: Edinburgh, UK. Green open access

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Abstract

Saving opportunities can only be offered in group-lending by restricting the number of borrowers in a group, thus creating intra-group competition for loans. Our model predicts that this would lead to negative assortative matching along wealth lines (the wealthy would group with poorer individuals). We find that in a two member group, the borrower's wealth threshold for joining the group would be greater than the non-borrower's wealth threshold. The non-borrower's wealth threshold increases and the borrower's wealth threshold decreases with the cost of capital, thus widening the gap between the two thresholds. We thus highlight the two countervailing effects of subsidising the cost of capital, i.e., the trade-off between raising the wealth threshold for joining the group as a non-borrower and decreasing the expected time it would take to loosen the wealth deprived non-borrower's credit constraints.

Type: Working / discussion paper
Title: Does Subsidising the Cost of Capital Really Help the Poorest? An Analysis of Saving Opportunities in Group-Lending
Open access status: An open access version is available from UCL Discovery
Publisher version: https://www.ed.ac.uk/economics/research/discussion...
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Group-Lending, Microfinance, Savings, Outreach, Wealth
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
URI: https://discovery.ucl.ac.uk/id/eprint/10052420
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