Abstract:Group default risk is an important reason for the failure of farmers’ group lending,and it can be caused by collusion among group members or deterioration of business environment.To effectively prevent and control the group default risk,this paper attempts to introduce the collaterals into group lending to make a new lending model,and has analyzed its operation mechanism with the help of relevant data and game theory.It is found that the increasing collateral of farmers in our country has made this new lending model practical.Moreover,the average success probability of group’s investment projects is positively related to the cash realizable value of collaterals when members conspire with each other,which means that collaterals can prevent members from colluding with each other to make high-risk investments to some extent in addition to being an important means of loss compensation in the loan for the bank.Therefore,village banks are advised to try out the innovative model of farmers’ group lending with collaterals to prevent the group default risk effectively.Furthermore,the paper puts forward some other practical suggestions,such as establishing risk-sharing mechanism and carrying out group lending with members in different agricultural production activities.