Study On Group Lending Based On Principal-Agent Relationships

In the case of asymmetric information, the principal-agent problem arises between bank and borrowers. Because in the credit market, both bank and borrowers want to maximize their own utility. While their profits always run in in the opposite direction.To ensure profits, credit rationing is bank’s choice. So borrowers need to signal they are worth to get loans.Collateral is traditional way to prove themselves. In that way, for SMEs lack of collateral, they can not obtain loans obviously. In order to look for alternative mortgage for SMEs in credit rationing equilibrium, this article proves that relationship loan is the key point to solve credit rationing problems for SMEs. As one of the ways of relationship loans, group lending is able to ease the principal-agent problem between bank and borrowers. Because it can take advantage of group responsibility to replace collateral in traditional loan agreements. Thus, this article is mainly divided into four parts:The first part summarizes credit theory easing principal-agent problem by literature induction and comparative analysis. So it provides theory support for group lending instead of mortgage loans can ease the credit rationing. Stiglitz-Weiss model solves the principal-agent problem through credit rationing problem. Bester model proves collateral as signal can avoid credit rationing. The equilibrium is realized screening by interest rates and collateral at the same time. While Ghatak model illustrates the possibility of group lending replaces collateral.The second part sums up group lending contracts in real life through the extensive literature to look for different incentives and constraints between bank and group. Accordingly group lending contracts can be divided into four types:"1+N" supply chain group lending, "a cluster of financial companies" group lending, co-guarantee group lending and mutual guarantee group lending. Each contract has their own incentive and constraint. But they are all useful to group lending contract design.The third part is on the basis of the second part. How to maximize bank’s profits through designing group lending contract is this part objective. First, borrowers form group by risk-sharing and form group responsibility at the same time. Then, bank is introduced. Design sustainable group lending contract to achieve sub-game perfect equilibrium. Finally, compare profits under individual liability and joint liability and explain the necessity of group lending taking joint liability. Of course, it also provides reference for group lending enterprises set screening index.The last part select "1+N" supply chain group and do questionnaire. According to the survey result, this part illustrates specific indicators and weights screening business when bank gives "1+N" supply chain group lending with analytic hierarchy process.This paper is just an exploratory research for bank implement group lending.