Research Handbook of Finance and Sustainability
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Research Handbook of Finance and Sustainability

Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen

The severe consequences of the global financial crisis 2008-2009 and numerous accounting frauds and financial scandals over the last fifteen years have let to calls for more ethical and responsible actions in all economic activities including consumption, investing, governance and regulation. Despite the fact that ethics in business and corporate social responsibility rules have been adopted in various countries, more efforts have to be devoted to motivate and empower more actors to integrate ethical behavior and rules in making business and managerial decisions. The Research Handbook of Finance and Sustainability will provide the readers but particularly investors, managers, and policymakers with comprehensive coverage of the issues at the crossroads of finance, ethics and sustainable development as well as proposed solutions, while focusing on three different levels: corporations, investment funds, and financial markets.
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Chapter 13: Microfinance and joint liability lending

John Creedy and Hien Hoang

Abstract

Lending small amounts of credit to people in a market with information asymmetries is difficult due to three main problems: adverse selection, moral hazard, and credit contract enforcement. These problems are magnified if borrowers do not have adequate collateral to secure the loan. In the microfinance context, microfinance organizations have used joint liability lending, which refers to a situation in which two or more borrowers are liable for repayment of a debt or obligation, and a lender can be compensated by them both individually or jointly. This lending technique, under certain situations, can help the lender to deal with the asymmetric information problems in the credit market, where information is costly. This chapter reviews and extends theoretical analyses of group lending, which provides insights about the relationship between group lending mechanisms and loan repayment performance. The analysis is based on the self-selection model or screening model, the self-monitoring model, and the self-enforcement model. This chapter extends the theories by applying different assumptions to see how the results change under different situations.

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