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Microfinance (MF) has attracted growing attention as a means of improving financial access. Reflecting the enthusiasm about it, Government of India has initiated the biggest MF program since 1992. This program adopts a group lending methodology with joint liability based on Self-Help Group (SHG) in which microloans are designed to be allocated among members by themselves. Despite the proliferation of impact evaluation studies on MF, few studies shed light on loan allocation or actual credit access. There exists a black box which contains several questions. How do members allocate microloan within a group? Does there still exist credit rationing among participants caused by this loan allocation? This paper empirically explores these questions. The objective is to clarify the determinants of loan allocation and credit access within group lending, using original data collected in Kerala, South India. Estimation results show that the access to microcredit is not necessarily guaranteed for all of members in SHGs and loan is allocated in group lending with two types of credit rationing (demand-side and supply-side rationing). Our evidences suggest that a potential borrower would be preliminary rationed by lack of creditworthiness, insufficient implicit collateral requirements, weak bargaining power, transaction costs and, urgent needs by others. In addition, there might be a selection based on creditworthiness, political distortion, and wealth bias in loan allocation.


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