Before revision: This paper uses a mathematical model with appropriate assumptions, to model and to determine the optimal group size for microfinance loans.
After revision: Microlending, where a bank lends to a small group of people without credit histories, began with the Grameen Bank in Bangladesh, and is widely seen as the creation of Muhammad Yunus, who received the Nobel Peace Prize in recognition of his largely successful efforts. Since that time the model of microlending has received a fair amount of academic attention. One of the issues not yet addressed in detail, however, is the issue of the size of the group. (Some attention has nevertheless been paid, see the appropriate references in this paper.) Instead of a game theory approach, we take a mathematical approach to the issue of an optimal group size for microfinance loans.