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Group Mobilisation: Tenets of Micro-credit for Poverty Reduction
| Guest post by: African Development Bank |
Article Overview: 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.
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Free Download - References: Human Capital and Economic Development By African Development Bank |
Group Mobilisation: Tenets of Micro-credit for Poverty Reduction
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
Savings Mobilisation: Tenets of Micro-credit for Poverty Reduction
When is microfinance NOT an appropiate tool? FAQ
III. BACKGROUND - Microfinance in Africa
1.19 Building trust: Working Out of Poverty
Recommendations for future research - Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia
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About the Author: African Development Bank RSS for African's articles - Visit African's website Click here to visit African's website   Domestic farm support programs in developed countries Provisions of Agreement on Agriculture Regionalism Trade and Development in Africa MFI structural inconsistencies and mismatch for poverty reduction Tenets of Microcredit for Poverty Reduction Targeting women Tenets of Microcredit for Poverty Reduction Export Promotion Strategies for Manufactured Goods New Approaches to Trade Development in Africa |
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