Under Asymmetric Information Group Loans Study

On the capital market, the asymmetric information can result in a low efficiencyof resource allocation. Because of the asymmetry between banks and borrowers, thebanks have to confront "four problems" which are adverse selection, moral hazards,audit cost and contract enforcement. For these problems, the banks may select creditrationing, and do not lend to those borrowers and middle-and-small-scale-enterprisewhich can't afford collaborations, though they can loan at higher interests. Thus makea low efficiency of the allocation of finical resource. On the one hand, the banks rationed credit, and on the other hand, manyborrowers and middle-and-small-scale-enterprise can't get money, which is called"credit market failure". Group lending is successful in coping with this "credit marketfailure". As a typical micro-credit, it can make the banks to use joint liability toencourage the information between borrowers to be used completely, and thus toalleviate the "four problems" for the banks. At the same time, it has attracted manyeconomists' and policy makers' attention for its high repayment rate. The other use of group lending is fighting against poverty. It can lend to manypoor borrowers and small-and-middle-scale-enterprise and get surprisingly highrepayment rate, and so is call as a "miracle" of micro-credit. At the same time, it alsocan be good to those social targets such as enhancing the borrowers' consumptionlevel, education spending, and getting social impartiality. According to these stylized facts, it make the current research work of this fieldtry to make explaining why group lending can be successful on the world scale as themain job. So this paper tries to do this work, too. But the fancy of this field do not only just because of that group lending issuccessful on the world scale, but also there are many important phenomena need tobe explained during the practice, and there are many question conflicted need to beanswered exactly by researchers. For example, why the repayment rate of grouplending is so high? What is the internal incentive mechanism of group lending? Whythe repayment rate of many failed banks is so different at different time and places?Why these current studies could not give a convincible explanation to thesedifferences? Why some group lending banks do not success? Why the high loaninterest rate does not result in a failed yet a successful group lending? Isn't theprediction of high interest rate can only attract high risk borrowers by credit rationingtheory does not happened in during group lending? The opinion that the banks canmake use of different contracts composed of high or low interest rate and low or highjoint liability to select borrowers is useful in practice? Why many of the currentstudies think there are many free riding yet the others think there are little free ridingin group lending and who are right? Does these current studies which have usedmodel of only two persons can give a essential understanding of how group lendinggoing on in effect? What are the possible sources of group lending which can enhancethe efficiency of credit market? How can group lending play a better role in fightingagainst poverty? Can group lending banks get financial sustainability? And in the end,does group lending should exist or not? Once you come into this field, there are tremendous strength impress you to haveinterests on studying these questions. But this paper has not intended to answer allthese questions. The main work of this paper is around answering the question "why grouplending can succeed on the world scale?" and try to explain several phenomena existsin group lending. Firstly, most of group lending has a high repayment rate. Secondly, Vthe high loan interest rate has not cause the group lending failed yet succeeded.Thirdly, some unsuccessful group lending have different rep...