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 countries. Economists have proposed several theories of joint-liability lending that stress various aspects of its informational and enforcement advantages over other forms of lending. This paper analyzes how joint-liability lending promotes screening, monitoring, state verification and enforcement of repayment. An empirical section draws on case studies to highlight how joint liability works in practice.