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Microcredit. The solution to failures in the credit market


Darbas anglų kalba. Paskolų rinka. Introduction. Inefficiency in the credit market. Credit constraints. Defining market failures in the credit market. Imperfect information in the credit market. Agency problems. Adverse selection. Moral hazard. Microcredit: group lending. The method of group lending: example from Bangladesh. Overcoming adverse selection. Overcoming moral hazard. Limits to group lending. The economic impacts of microcredit. How microcredit affects households. Microcredit: does it work? Institutions and sustainability. The failure of state-owned development banks. Microcredit institutions. Cost-benefit analysis. Smart subsidies. Conclusion.


Microcredit is a hot topic among economists and development specialists. The year 2005 was the UN International Year of Microcredit and last year, the Bangladeshi economist Muhammad Yunus, received the Nobel Peace Prize for his pioneering work in the credit market in Bangladesh. Yunus’ non-profit bank offers small loans to people that are not creditworthy. This loan can make the difference in rising people above the poverty line and giving them the opportunity to achieve higher living standards.
When Yunus visited some remote villages for the first time, he was shocked by the huge interest rates of over 150 percent, set by village moneylenders. He started wondering why commercial banks are not interested in getting these returns. After some research he concluded that a number of entry barriers exist for banks in developing countries to engage in this business. Lack of information is the critical one. Village moneylenders are better acquainted with the borrowers than banks, and they can keep out unreliable borrowers. Furthermore, they can monitor the behaviour of their clients closely and act on a small scale, which is impossible for banks. These advantages create small monopolies for village lenders in the credit market and this causes serious problems for the population because the high interest rates prevent them from setting up profitable businesses.
In short, Yunus’ invention of microcredit entails the forming of a group of borrowers that take a loan together. They can monitor and assist each other and therefore the transaction costs of selecting and monitoring are very low compared to the banks’. Another interesting feature of the system is the fact that the largest part of borrowers is female, because they have proven to be more committed and responsible. Peer pressure has shown to be extremely useful in this respect, resulting in a very high repayment rate.
Over time, Yunus’ system has been transformed and applied to many different situations all over the world. In this paper, it will be examined how microcredit can overcome market failures in the credit market and whether non-profit institutions should continue their intervention in the credit market. ...

Rašto darbo duomenys
Tinklalapyje paskelbta2008-01-08
DalykasFinansų kursinis darbas
TipasKursiniai darbai
Apimtis19 puslapių 
Literatūros šaltiniai19 (šaltiniai yra cituojami)
KalbaAnglų kalba
Dydis47.37 KB
AutoriusOlga Muravjova
Viso autoriaus darbų1 darbas
Metai2006 m
Failo pavadinimasMicrosoft Word Microcredit. The solution to failures in the credit market [speros.lt].doc

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