Most providers of micro-credit lend without requiring collateral. In doing so, they can provide poor households with access to small-scale loans to expand household businesses and meet consumption needs. Micro-credit institutions demonstrate that a combination of mechanisms can overcome the market imperfections created when banks lack good information about borrowers and when borrowers lack collateral. Micro-credit innovations are of both theoretical interest and practical importance. Proponents argue that micro-credit can be a tool to reduce poverty and, in the best cases, can operate profitably and on a large scale, free of public subsidy.
KeywordsAdverse selection Behavioural economics Capital access Collateral Collusion Credit rationing Grameen bank Group lending Information revelation Joint liability Micro-credit Micro-finance Moral hazard Muhammad Yunus Poverty alleviation
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