Date of Award


Degree Name

Doctor of Philosophy



First Advisor

Gilbert, Scott


The Grameen Bank in Bangladesh has pioneered a credit delivery system with a vision to bring banking services to poor villagers. It extends small collateral-free loans, known as microcredit (or microfinance in broader terms), to group of poor borrowers in order that they may engage in income generating activities. Conventional banks usually do not consider the poor as bankable due to a lack of collateral and the incidence of high costs and risks. Grameen Bank's peer lending methodology has overcome these barriers to provide credit to the poor ( The joint liability condition is one of the prominent features of the group lending methodology introduced by the Grameen Bank in the 1970s. Group lending with joint liability refers to the practice of disbursing loans to individual members within a group while the group as a whole is held liable if any repayment difficulty arises. In chapter 1 we theoretically examine an incentive mechanism in microfinance that may enhance repayment rates without applying the joint-liability condition introduced by the Grameen Bank in Bangladesh. In a two-period model of micro-lending with individual liability, we incorporate a savings scheme as an incentive device to prevent strategic default. Our theoretical analysis shows that a proper savings plan increases the borrower's future consumption, raises her utility and thus provides her with an incentive to repay even the second-period debt under a two-period financial contract. In chapter 2 we incorporate uncertainty into our two-period model of microcredit and savings with individual liability. We theoretically show that the borrower's savings and future consumption in high-income state are higher than those in low income state. Moreover, as the probability of generating high income from an investment project decreases, the interest rate on the borrower's savings to be offered by the lender increases to prevent strategic default. In chapter 3, based on a case study of Association for Social Advancement (a leading microfinance institution in Bangladesh), we empirically explore the impact of female borrowers' savings and male borrowers' savings on financial self-sufficiency and "depth" of outreach of the microfinance institutions. The results of our study highlight the possibility of mobilizing borrowers' savings to enhance the achievement of financial self-sufficiency of the microcredit programs and to improve outreach to poor borrowers. However, we find that female borrowers' savings, not male borrowers' savings (as the cointegrating regression results show) have statistically significant impact on the microcredit program's financial self-sufficiency and "depth" of outreach.




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