The economics of lending with joint liability: theory and practice

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 countr ies. Economists have proposed several theories of joint-liability lending t hat stress various aspects of its informational and enforcement advantages over other forms of lending. This paper analyzes how joint-liability lendin g promotes screening, monitoring, state verification and enforcement of rep ayment. An empirical section draws on case studies to highlight how joint l iability works in practice. (C) 1999 Elsevier Science B.V. All rights reser ved.