Group-lending with sequential financing, contingent renewal and social capital

This paper focuses on the dynamic aspects of group-lending, in particular sequential financing and contingent renewal. We examine the efficacy of these two schemes in harnessing social capital. We find that, for the appropriate parameter configurations, there is homogenous group-formation so that the lender can ascertain the identity of a group without lending to all its members, thus screening out bad borrowers partially. Moreover, under certain parameter configurations, negative assortative matching occurs as a robust phenomenon.