Another issue arising in the discussion of targeting clients is that of group dynamics and mobilisation. One of the other features of micro-credit for the poor is the alternatives developed to collateral, namely group guarantees. Most micro-credit delivery mechanisms, whether community based or business oriented, request clients to form into groups in order to receive a loan. The group is meant to guarantee the individual borrower and to follow-up that the individual makes repayments on time because the group is a stakeholder and would not receive further loans if the individual defaults. In Malawi and Ethiopia, evidence from the field shows that groups form around people of similar socio-economic and poverty characteristics. Also, in the majority of the cases groups are single sex; mixed groups have to be established by conscious design. Furthermore, because men want and can receive bigger loans based on physical assets or other forms of guarantee, they do not form into groups and usually qualify for individual loans. Group formation and peer pressure mainly serve the interest of the MFI in ensuring repayments and cutting back on their monitoring and follow-up costs.
Discussions with clients of MFIs in Malawi revealed that group lending methodology might not be the most suitable alternative that it is claimed to be. The obstacle reported is that some clients are more active than other group members, making their repayments promptly and at times even before the deadline. The difficulty arises for the active client when she wants a second loan, which she cannot get until the first loan cycle is completed. Therefore, those clients who cannot perform well and cannot meet the repayment deadlines delay the better-off clients from getting further loans. Discussions with the credit groups revealed that the more active clients soon become disillusioned by this process and drop-out of the credit programme altogether.
ECONOMIC RESEARCH PAPERS NO 74 (January 2003)
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia by Sunita Pitamber
To learn more about this author, visit African Development Bank's Website.
Like this article? Share it with your friends
|
|
African Development Bank
(Visit African's Website)
The African Development Bank is the
premier financial development institution
of Africa, dedicated to combating poverty
and improving the lives of people of the
continent and engaged in the task of
mobilizing resources towards the economic
and social progress of its Regional Member
Countries.The Bank’s s mission is to
promote economic and social development
through loans, equity investments, and
technical assistance.
The ADB is a multilateral development bank
whose shareholders include 53 African
countries and 24 non-African countries
from the Americas, Asia, and Europe. It
was established in 1964, with its
headquarters in Abidjan, Côte d’Ivoire,
and officially began operations in 1967.
|
|
|
African Development Bank's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get African Development Bank's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
