The problem of transaction costs in group-based microlending: An institutional perspective

To be financially viable, group-based microlending needs to economize on transaction costs for both lenders and borrowers. Group lending programs vary in their transaction cost characteristics depending on their specific credit delivery arrangements and social contexts. This article illustrates these arguments by examining the challenges faced by various group lending programs 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. (C) 1998 Elsevier Science Ltd. All rights reserved.