ECONOMIC GROWTH CENTER
                                
                        YALE UNIVERSITY
                                
                                
                        P.O. Box 208269
                      27 Hillhouse Avenue
               New Haven, Connecticut 06520-8269
                                
                                
                                
                                
                CENTER DISCUSSION PAPER NO. 791
                                
                                
                                
                                
         THE ECONOMICS OF LENDING WITH JOINT LIABILITY:
                      THEORY AND PRACTICE
                                
                                
                                
                                
                                
                        Maitreesh Ghatak
                     University of Chicago
                                
                                
                      Timothy W. Guinnane
                        Yale University
                                
                                
                                
                          October 1998




          Note: Center Discussion Papers are preliminary materials circulated to stimulate discussions and
          critical comments.



         The Economic of Lending with Joint Liability:
                    Theory and Practice    
                                
                                
         Maitreesh Ghatak*        Timothy I Guinnane **
                                
                                
                                
                                
                     *University of Chicago
                       **Yale University





                            Abstract

     Institutions that rely on joint liability to facilitate lending to the poor have a long history and
are now a common feature of many developing countries.  Economists have proposed several theories
of joint liability lending that stress various aspects of its informational and enforcement advantages
over other forms of lending.  This paper analyzes how joint-liability lending promotes screening,
monitoring, state verification, and enforcement of repayment.  An empirical section draws on case
studies to highlight how joint liability works in practice.






Keywords: Joint Liability, Group Lending, Credit Cooperatives.
JEL Classification Numbers: D82, G20, N23, O12