Beyond Group Lending
Introduction
The “discovery” of group lending opened up possibilities for microfinance. It is by far the most celebrated microfinance innovation, and with good reason. Group lending showed how unconventional contracts can work where tried-and-true banking practices failed again and again, and the shift in understandings led to other new ideas that borrowed as much from traditional moneylenders as from modern banking practices. Today, group lending is just one element that makes microfinance different from conventional banking.
Many of these other new ideas are also used by institutions practicing group lending. But the mechanisms are not intrinsically linked, and institutions are increasingly finding that they can pick and choose different elements. A case in point is “progressive lending,” which is a staple of the “classic” Grameen Bank model but which does not hinge on group lending per Se. Progressive lending refers to the practice of promising larger and larger loans for groups and individuals in good standing. Other innovations already present in the classic Grameen model include repayment schedules with weekly or monthly installments, public repayments, and the targeting of women. In addition, microlenders have adopted more flexible attitudes to collateral. The emerging new contracts do not necessarily involve groups, and they have been especially helpful in areas with low population densities or highly diverse populations—and in situations where more established clients seek greater flexibility.
Bangladesh’s ASA, with its obsession with maximal efficiency, has weakened joint liability in its lending approach, for example, and even the Grameen Bank has proposed to soften joint liability in “Grameen Bank II,” whic ...