IDEAS home Printed from https://ideas.repec.org/a/oup/oxecpp/v74y2022i3p920-935..html
   My bibliography  Save this article

Simultaneous borrowing and saving in microfinance
[Microfinance beyond group lending]

Author

Listed:
  • Dyotona Dasgupta
  • Prabal Roy Chowdhury

Abstract

This paper provides a rationale for one of the most widely practised mechanisms by microfinance institutions (MFIs)—simultaneous borrowing and saving. Unlike the existing literature, our explanation does not involve any behavioral aspect. We study a dynamic relationship between a benevolent MFI and a borrower who is subject to an ex post moral hazard problem. The optimum contract involves simultaneous borrowing and saving—at each date, the MFI provides a small loan, the borrower invests that in a production technology, and saves the net return with the MFI. These help her to accumulate a lumpsum amount and ‘graduate’ to an improved lifetime utility which is not achievable when only credit is provided. Over time, as her savings increase, her incentive to repay increases. The optimal loan scheme is weakly progressive, i.e. weakly increasing over time. We also provide a sufficient condition for the non-existence of any incentive compatible contract.

Suggested Citation

  • Dyotona Dasgupta & Prabal Roy Chowdhury, 2022. "Simultaneous borrowing and saving in microfinance [Microfinance beyond group lending]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 920-935.
    • Handle: RePEc:oup:oxecpp:v:74:y:2022:i:3:p:920-935.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/oep/gpab062
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dasgupta, Dyotona & Mookherjee, Dilip, 2023. "A theory of progressive lending," Games and Economic Behavior, Elsevier, vol. 137(C), pages 211-227.
    2. repec:ags:aaea22:335439 is not listed on IDEAS
    3. Valentina Hartarska & Jingfang Zhang & Denis A. Nadolnyak, 2023. "Scope economies from rural and urban microfinance services," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1138-1167, April.

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:74:y:2022:i:3:p:920-935.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/oep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.