Why the Microfinance Institutions exist: Lending groups as a mechanism to enhance informational symmetry and enforcement activities

Authors

  • Diego Antônio Bittencourt Marconatto Universidade Federal de Santa Maria
  • Luciano Barin Cruz
  • Gilnei Luiz de Moura Universidade Federal de Santa Maria
  • Emidio Gressler Teixeira Universidade Federal de Santa Maria

Keywords:

Microfinance, Screening, Monitoring, Enforcement, Loan Groups.

Abstract

In this paper, we focus on the economic motivation for the existence of microfinance institutions (MFIs). In doing so, our study contributes to the debate regarding why MFIs exist and, especially, what mechanisms are used to address the risks associated with their operation. In examining the reasons why some individuals are regarded as “non-bankable”, we lay out the basic economic logic that motivates the exclusion of this population from formal credit markets. Next, we show how the lending group methodology overcomes the credit dilemma which sustains and increases the exclusion of the poorest from these formal credit sources. Through this development, we point to the microfinance founding mechanisms: the increase of both the informational symmetry and the enforcement capacity of MFIs through the enhancement of their screening, monitoring and enforcement activities. We also highlight the importance of context and gender for the success of lending groups. Finally, we analyze these mechanisms in the Brazilian context. 

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Author Biographies

Diego Antônio Bittencourt Marconatto, Universidade Federal de Santa Maria

Docente do Departamento de Ciências Administrativas da Universidade Federal de Santa Maria

Luciano Barin Cruz

Professor Associado do Departamento de Administração da École des Hautes Études Commerciales de Montréal (HEC Montréal). Doutor em Administração pela Universidade Federal do Rio Grande do Sul e pela Université Jean Moulin Lyon III

Gilnei Luiz de Moura, Universidade Federal de Santa Maria

Docente do Departamento de Ciências Administrativas da Universidade Federal de Santa Maria

Emidio Gressler Teixeira, Universidade Federal de Santa Maria

Discente do Curso de Graduação em Administração da Universidade Federal de Santa Maria

Published

2017-09-30

How to Cite

1.
Marconatto DAB, Cruz LB, Moura GL de, Teixeira EG. Why the Microfinance Institutions exist: Lending groups as a mechanism to enhance informational symmetry and enforcement activities. Organ. Soc. [Internet]. 2017Sep.30 [cited 2022Oct.7];24(83). Available from: https://periodicos.ufba.br/index.php/revistaoes/article/view/15011

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Articles