Graduating from Group to Individual Loans, with the Help of Personal Guarantees
44 Pages Posted: 10 Jun 2022 Last revised: 16 Jun 2022
Date Written: June 7, 2022
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: Suggested Citation