Chapter

Learning from Visa<sup>®</sup>? Incorporating Insurance Provisions in Microfinance Contracts

Loïc Sadoulet

in Insurance Against Poverty

Published in print November 2004 | ISBN: 9780199276837
Published online January 2005 | e-ISBN: 9780191601620 | DOI: http://dx.doi.org/10.1093/0199276838.003.0018

Series: WIDER Studies in Development Economics

Learning from Visa®? Incorporating Insurance Provisions in Microfinance Contracts

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This chapter argues that the repeated interaction between banks and clients allows borrowers to establish a credit record, which they can use to insure themselves from temporary liquidity shocks. It discusses microcredit contracts, and the importance of insurance for borrowers based on a survey in Guatemala. It presents a model that captures the features of microcredit contracts, i.e., the joint liability of members for individual loans and group loans. The model shows the incentive mechanisms behind microfinance contracts, and how insurance is an important by-product of liability loans.

Keywords: microfinance contracts; insurance; microcredit; joint liability; Guatemala

Chapter.  16315 words.  Illustrated.

Subjects: Economic Development and Growth

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