Group lending and financial intermediation: an example

Uncollateralized lending to jointly liable groups of individuals has proven to be a successful way of delivering credit to the poor in less-developed countries. Currently, such financial arrangements are being tried in the United States. The author develops a financial intermediation model in order to analyze the portability of group lending to the United States and the connection between group lending and the rest of the financial intermediation sector.
Imagine a small group of people, each of whom borrows money from a financial intermediary. The intermediary does not require collateral because the borrowers are relatively poor and do not [...]