Economics Microfinance Questions
Group lending in microfinance refers to a lending model where small groups of individuals, typically from low-income backgrounds, come together to borrow money from a microfinance institution. These groups, also known as self-help groups or solidarity groups, act as a form of collateral for the loans.
In this model, each member of the group is jointly responsible for the repayment of the loan taken by any individual within the group. The group members provide mutual support and encouragement to ensure timely repayment. This system helps to mitigate the risk of default as the social pressure and accountability within the group act as a strong incentive for repayment.
Group lending also promotes financial inclusion by providing access to credit for individuals who may not have sufficient collateral or credit history to qualify for traditional loans. It fosters a sense of community and empowerment as members work together towards their financial goals.
Microfinance institutions often provide financial literacy training and other support services to the group members to enhance their financial management skills and increase the chances of successful loan repayment. Overall, group lending in microfinance plays a crucial role in poverty alleviation and economic development by enabling individuals to start or expand their small businesses, generate income, and improve their living standards.