by Rowell C. Dikitanan, RDD-SEARCA
12-August-2008 SEARCA RDD News Release
The success of group lending depends on nature and composition of borrowing groups. This was the general finding of Mr. Assad A. L. Baunto, in his study on group lending in the Philippines (2007)1.
Group lending is a popular credit window in the Philippines. It refers to an arrangement where individuals get together and form a group for the purpose of securing a loan without collateral. Under this arrangement, credit is extended to each member but everyone is accountable if any member defaults.
Similar experiences in other countries showed that group lending was generally seen as a less risky lending strategy, even in a high-risk environment like a camp. In Uganda, for example, “Groups were seen to lower the risk of absconding. People often don’t like joining groups that are artificially formed for the purpose of getting a loan, but if they are already established in groups, like savings groups, it can be a good approach for organizations” (Jacobsen, 2008)2.
Jacobsen’s work included incorporating trainings with getting a loan. These trainings were on how to keep the books, basic accounting and marketing strategies.
The poor are forced to rely on informal and more expensive sources of credit because they lack access to the services of financial institutions. Through group lending, they are able to secure small loans to provide them the means to create more products, improve their services, expand their market and ultimately increase their income and improve the overall quality of their lives. On the average, group membership homogeneity is an important element in the design of group lending to reap the maximum benefits derived from better access to credit by the poor.
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