Peer group micro-lending programs in Canada and the United States

There are numerous theoretical models that consider peer group micro-lending programs. These models use monitoring, peer pressure, mutual insurance, information transfer and the costs of entering new relationships to explain the success of peer group micro-lending programs outside Canada and the United States (such as the Grameen Bank in Bangladesh). While these explanations may be applicable to programs abroad, they do not adequately describe the dynamics of many programs in Canada and the United States due to the vast difference in economic environment. I present a model that relies on screening and the reduction of overhead costs to explain the existence of peer group micro-lending programs in Canada and the United States. Evidence from these programs is presented to support the model. (C) 1999 Elsevier Science B.V. All rights reserved.