Collusion-proof mechanism designing for rural micro-group-lending

MENG  Wei-Dong; ZHOU  Ping-Feng; JIANG  Li-Mei

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Science Research Management ›› 2011, Vol. 32 ›› Issue (6) : 124-132.

Collusion-proof mechanism designing for rural micro-group-lending

Meng Weidong, Zhou Pingfeng, Jiang Limei

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Abstract

Using the mechanism design theory, individual loan contracts and collusion-proof group lending contracts with asymmetric information are designed, and the effect of structure of the social members in the village and project revenue on MFIs' decisions is studied. The results show that individual contracts and collusion-proof group contracts designed by MFIs can avoid adverse selection and moral hazard. Compared with the individual contracts, collusion-proof group contracts which are designed based on assortative matching effect are suitable for more villages and can extract more rents. Only if the structure of the social members in village and project revenue could make MFIs' maximum expected payoff no less than zero, then the MFIs are ready to provide collusion-proof group contracts; while with the limited capital, the MFIs still needs to rank their maximum expected payoff in different villages.

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asymmetric information / assortative matching effect / individual lending / group lending / collusion

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Meng Weidong, Zhou Pingfeng, Jiang Limei. Collusion-proof mechanism designing for rural micro-group-lending[J]. Science Research Management. 2011, 32(6): 124-132

References

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