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The need to construct an effective strategy for industrial development in low-income countries has been largely ignored by development economists because industrial policies have failed in many developing countries. This does not imply, however, that industrial development cannot be promoted. This paper attempts to synthesize the conventional wisdom in development economics with recent advancements in various fields of economics (such as theories of endogenous growth and agglomeration economies) to provide a useful framework to design a strategy for industrial development, which consists of investments in managerial human capital followed by the provision of credit and the construction of industrial zones.

Access to Finance --- Comparative Advantage --- Competitive Market Environments --- Construction of Industrial Zones --- Economic Theory & Research --- ICT Policy and Strategies --- Industrial Cluster --- Labor Policies --- Macroeconomics and Economic Growth --- Managerial Training --- Political Economy --- Provision of Credit --- Public Sector Development

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Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans - there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. The analysis finds compelling evidence that contract structure matters: for the same borrower, required monthly loan installments are 6 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 19 percent less likely to be missed under group liability contracts.

Access to Finance --- Bankruptcy and Resolution of Financial Distress --- Borrower --- Collateral --- Commercial banks --- Debt Markets --- Deposit Insurance --- Emerging markets --- Expenditure --- Finance and Financial Sector Development --- Financial market --- Financial support --- Income inequality --- Information asymmetries --- International bank --- Lenders --- Liability --- Loan --- Microcredit --- Microfinance --- Optimal contract --- Provision of credit --- Savings deposits --- Transaction --- Transaction costs