Eric Van Tassel

Group lending under asymmetric information

Abstract This paper examines joint liability loan contracts as part of a screening mechanism adopted by lenders using group lending schemes. A model and one-period game are introduced in order to analyze the type of optimal loan contracts that emerge when lenders have less information than borrowers. It is shown that under imperfect information, lenders may be able to utilize joint liability contracts as a means of screening agent types by inducing endogenous group formation and self-selection among the borrowers.

Asymmetric information and the mode of entry in foreign credit markets.

In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.

A study of group lending and incentives in Bolivia

Documents a case study of an urban group lending programme run by the bank BancoSol in La Paz, Bolivia. The lending programme has proved capable of sustaining a set of widely accessible lending relations with a large number of self‐employed microentrepreneurs in Bolivia. In documenting this programme, our aim is to contrast several features of BancoSol’s group lending policies against some of the theoretical results that have emerged from the microeconomic modelling research on group loan contracts. This exercise is based in part on a small survey that was conducted among BancoSol’s client borrowers.

Structuring Subsidies in a Long-Term Credit Relationship

We study a credit market using an infinite horizon model where an altruistic lender offers loans to agents for production projects that may grow over time. The lender funds the loans using a combination of external debt and subsidies. The optimal way for the lender to subsidize the credit relationships depends on the probability of project growth. When growth is less likely, it is best to commit to ongoing subsidies. However, for a range of growth probabilities, ongoing subsidization may not be credible and this can have negative efficiency implications.