India is a country which discerns between “wilful” and other defaulters. The issue of wilful default by a large number of borrowers had been receiving the attention of Government of India, Reserve Bank of India, and credit institutions since 1986. This study is an attempt to critically examine the regulatory framework on “wilful defaults”. This paper has been divided into three phases. Phase I introduces the concept of wilful defaults and the scheme framed for disclosure of such information. Phase II was during 2001 to 2005, when the monitoring tools were strengthened and penal measures were framed. During Phase III greater transparency and accountability was brought in the process of identification of a “wilful” defaulter. A centralized mechanism of credit information and dissemination was put in place to alert the lenders against the borrowers who abuse the public funds and jeopardize the health of the institutions. The relevance of this study at this juncture, is very crucial for credit risk management of the financial institutions in India. A thorough understanding of the policy prescriptions would enable these institutions to employ an ex-ante approach to detect early stages of strategic defaults and thus avert high costs associated with it.

Brazil provided at 2004 an interesting natural experiment con& cerning personal credit. The government implemented a new law that allows some financial institutions to offer a specific type of credit. This new law removes a significant share of the moral hazard problem, since the ...

Institutions that rely on joint liability to facilitate lending to the poor have a long history and are now a common feature of many developing countries. Economists have proposed several theories of joint-liability lending that stress various aspects of its informational and enforcement advantages over other forms of lending. This paper analyzes how joint-liability lending promotes screening, monitoring, state verification and enforcement of repayment. An empirical section draws on case studies to highlight how joint liability works in practice.

Abstract Due to the persistent increase in loan default in developing countries, especially Nigeria, several lending Institutions resorts to group lending that is based on the joint liability approach to mitigate default. Therefore, this study analyzed the impact of joint liability group lending approach on loan repayment performance among Micro Finance Bank loan beneficiaries in Akwa Ibom State, Nigeria. Data collected from 200 beneficiaries selected from five Micro Finance Banks were analyzed using repayment rate, Z test and Probit model. Result revealed that while traders, civil servants and artisans were given preference in terms of loan disbursement only two out of every hundred farmers were able to access loans. Findings further showed a significant difference in loan repayment between the joint and the individual liability groups of beneficiaries. Also, while age, educational attainment, availability of surety, total income of beneficiaries and loan size were found to enhance loan repayment, household size and interest rate impacted negatively on loan repayment performance. Accordingly, series of policy implications have been offered.. Keywords: Joint liability; Loan Repayment; Performance, Micro Finance Bank

ABSTRACT This paper develops a model of the strategic interaction of borrowers in the framework of group lending, in an environment characterized by moral hazard. Unlike previous papers, monitoring by one group member of his or her peers is not a crucial feature of the model. Even without monitoring, repayment performance under group lending can compare favorably to such performance under individual liability. The effects of allowing monitoring and of changing group size are also investigated.

Microfinance plays a significant role in the upliftment of rural India. It has emerged in 1980's to fulfill the need of poor families to whom banks and financial institutions deny loans as they don't have security to offer. Even today more than 60 per cent of population resides in rural India and they are directly or indirectly depend upon agriculture. More than 75 per cent of the farmers are in economically worsening condition. As they don't get financial assistance from banks and other financial institutions, the concept of microfinance came in to being. One of the goals of establishing Regional Rural Banks (RRBs) is to provide credit to rural clientele. The group-based credit is through Self-Help Group (SHGs) or Joint Liability Group (JLGs). The former is formed to meet the credit needs of small farmers. In the present study, a modest attempt is made to appraise the credit operations of Saptagiri Grameena Bank (SGB) concerning JLGs after the merger in Chittoor and Krishna districts.

We design an artefactual field experiment to study the relationship between joint-liability lending and adverse selection, moral hazard and risk preferences. While theories concerning joint-liability lending have highlighted its ability to mitigate adverse selection in credit transactions, our experimental results indicate that joint-liability lending may actually induce problems of adverse selection. The results of our experiment, carried on in partnership with a Bolivian microlender, show that borrowers exogenously endowed with a risky project are disproportionately likely to choose jointly-liability contracts over individually-liable contracts. This behavior does not. We would like to thank Eliana Zeballos for assistance in carrying out the experimental work, Travis Lybbert for use of the University of California at Davis mobile experimental laboratory, and the University of San Francisco for financial support. We thank seminar participants at the London School of Economics and at the Second European Research Conference on Microfinance, and two anonymous referees for their comments. We would like to especially recognize the support of Porvenir for allowing its clients to be part of this study. 2 Adverse Selection and Moral Hazard in Joint-Liability Loan Contracts appear to be motivated by risk-diversification, but rather by free-riding, as these subjects disproportionally switch from safe to risky projects when exogenously given a joint-liability contract instead of an individual contract. Thus the results of our experiment offer a possible explanation why joint liability loans have diminished in popularity in recent years among both borrowers and microfinance lenders.