Advantages And Disadvantages Of Group Liability - 1706 Words

Abstract: An extensive debate exists about the advantages and disadvantages of group liability. In group liability, a group of individuals are responsible for each other’s loans if one member defaults, versus individual liability, where only the borrower is at risk if they default. Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. (1) Summary of the Article: Researchers examined two trials conducted by the Green Bank of Caraga to evaluate the effects of group liability relative to individual liability on monitoring and enforcing loans. In the first trial, a randomly selected half of the bank’s 169 existing group-lending centers on the island of Leyte were converted to the individual liability model, phased in over time. Researchers could then isolate the impact of group liability on behavior through peer pressure by comparing the repayment behavior of existing clients in group-liability centers and converted individual liability centers. Centers were then assigned to comparison, individual liability or staggered individual liability (the first loan for each member is covered by group liability, but subsequent loans have individual liability). Critical to the design is the fact that individual-liability centers were converted from existing centers, and not newly created. By comparing the repayment behavior ofShow MoreRelatedAdvantages And Disadvantages Of Sole Proprietorship1161 Words   |  5 Pageslimited liability companies, subchapter S corporations, and regular corporations are all different forms of a business. Each one has different advantages and disadvantages that make them their own unique business form. The simplest form of business is a sole proprietorship. 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