Microfinance games, Vol. 1 of 1

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Microfinance games

Author:	Gine, Xavier; Jakiela, Pamela; Karlan, Dean; Morduch, Jonathan;	Collection Title:	Policy, Research working paper ; no. WPS 3959
Country:	Peru;	Date Stored:	2006/07/27
Document Date:	2006/07/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	Latin America & Caribbean
Report Number:	WPS3959	SubTopics:	Civic Participation and Corporate Governance; Banks & Banking Reform; Insurance & Risk Mitigation; Financial Intermediation; Social Accountability
Volume No:	1 of 1

Summary: Microfinance has been heralded as an effective way to address imperfections in credit markets. But from a theoretical perspective, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. The authors created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted 11 different games that allow them to unpack microfinance mechanisms in a systematic way. They find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.


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