Graduating from Group to Individual Loans, with the Help of Personal Guarantees

44 Pages Posted: 10 Jun 2022 Last revised: 16 Jun 2022

See all articles by Vasso Ioannidou

Vasso Ioannidou

Bayes Business School (formerly Cass); Centre for Economic Policy Research (CEPR)

Sheng Li

University of Zurich

Mrinal Mishra

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: June 7, 2022

Abstract

Loans granted by banks to several entrepreneurs jointly, but for their own individual business and/or projects, are rarely studied. Analyzing 32 million month-loan observations from the Bolivian credit register, we establish that group loans comprise a sizeable part of the formal credit market, and that the most common group size equals two. Larger than individual loans, per borrower the group loans are smaller, with a longer duration and lower loan rates than individual loans. When borrowers are immature, they obtain credit through group loans. Later, involving personal guarantees, they are more likely to graduate to obtain credit through individual loans.

Keywords: group loan, individual loan, micro credit

JEL Classification: G20, O16

Suggested Citation

Ioannidou, Vasso and Li, Sheng and Mishra, Mrinal and Ongena, Steven R. G., Graduating from Group to Individual Loans, with the Help of Personal Guarantees (June 7, 2022). Swiss Finance Institute Research Paper No. 22-50, Available at SSRN: https://ssrn.com/abstract=4132670 or http://dx.doi.org/10.2139/ssrn.4132670

Vasso Ioannidou

Bayes Business School (formerly Cass) ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Sheng Li

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Mrinal Mishra

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse
14
ZURICH, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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