ECON 3430 Lecture Notes - Lecture 2: Grameen Bank, Microfinance, Disposable And Discretionary Income
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An overview of the financial system: grameen banking, small loans to women for weaving baskets. Problems in rural credit markets: basic characteristics of rural credit markets in least developed countries, people in developing countries have low income, disposable incomes are low, and savings are low. Institutional lenders: banks and formal credit institutions, government banks, commercial banks. Information: if banks had cheap ways to gather and evaluate information on their clients: collateral: if borrowers had marketable assets to offer as collateral, but borrowers are too poor to have much in the way of marketable assets. Typical microfinance projects: group-lending contracts instead of individual lending: bangladesh"s grameen bank, social impacts: poverty reduction and gender empowerment. Group lending: each participant borrower responsible for the debt of others, peer monitoring because a borrower that defaults creates a negative externality on others. Primary and secondary financial markets: primary market, new security issues sold to initial buyers, not well known to public; typically, private.