The Nobel Peace Prize was won by Muhammed Yunus of Grameen Bank in Bangladesh. The Bank pioneered the use of microcredit. Amazingly, the story in the Times reports that 96% of the borrowers are women and 98% of the money is repaid.
In a Stiglitz-Weiss model, a higher interest rate increases the average riskiness of projects, meaning average project failure is higher. A lender’s ability to monitor the borrower and the borrower’s “committment” to make the project a success are two factors that may counteract this.
My casual obsersvation from observing the culture of a country like Bangladesh is that failure to repay a debt has a stigma attached to it; close-knit communities enhance the stigma effect and also allow for the lender to carry out monitoring (indirectly). In addition, the fact that the women are doing the borrowing suggests that the average riskiness of the project may be somewhat reduced.
In any case, I think it really is a second economics Nobel (and not to an American!)
