Strategic group lending for banks
Credit institutions often refuse to lend money to small firms. Usually, this happens
because small firms are not able to provide collateral to lenders. Moreover, given the
small amount of required loans, the relative cost of full monitoring is too high for
lenders. Group lending contracts have been viewed as an effective solution to credit
rationing of small firms in both developing and industrialized countries. The aim of
this paper is to highlight the potential of group lending contracts in terms of credit