What are the advantages of group lending?
THE ADVANTAGES OF GROUP LENDING In particular, the group responsibility clause of contracts can mitigate the moral hazard, adverse selection, and enforcement problems that crippled previous attempts at lending to the poor by outside financial institutions.
What is the difference between group lending and individual lending?
Group lending strategies transfer monitoring to borrowers, where joint liability ensures strong incentives to members to help their peers succeed; Individual lending strategies retain the monitoring role with the MFI, where incentives to borrowers include exemption from additional risk, gain in privacy and time saving.
What are the disadvantages of individual lending?
Cons: Despite their apparent attractiveness, personal loans do have their fair share of disadvantages. Prominent amongst them are: High interest rates: As these loans don’t need any security, they are regarded as high risk by the lenders. No part payments: Most lenders don’t allow part payment of loans.
What is group lending?
Group lending is a unique financial service for low-income entrepreneurs. To obtain such a loan it is necessary to form a group of three or more individuals who run businesses that earn income and have been active for at least three months.
What are the disadvantages of group lending?
High risk of falling into a situation where you need to pay for another member of the group.
What is individual lending?
Individual lending methods are typically used for slightly larger loan sizes than the group-based approach. We offer business loans to small enterprises, salary loans to the low income employed, and an individual cashflow based product for the micro-entrepreneurs.
What are the limitations of group lending?
What are the characteristics of individual lending method?
These features include loan size, loan term, repayment frequency and pre-closure rules. Market research is a pre-requisite for launching a successful new product offering and MFIs must carefully dwell upon important product features of individual loan before rolling out the product.
What are the various approaches to group lending?
The study revealed that group lending approach is operated based on certain mechanisms which include; peer selection, joint liability, peer monitoring, dynamic incentives, weekly repayment meetings, compulsory savings, collateral substitutes, social programs and training as well as the fact that it targets women.
What are the advantages and disadvantages of individual lending?
Another benefit of individual lending is that it spares borrowers the negative effects such as time spent in group meetings and loss of privacy when they discuss their financial situation and investment projects with the peers who could oppose such projects ( Maria, 2009) in the process impeding their individual growth ( Giné and Karlan, 2010 ).
What’s the difference between personal and group lending?
In Kenya, as in Bangladesh, personal lending involves extending credit to an individual borrower while group lending involves extending credit to two or more people who are held liable for each other’s credit (Maria, 2009).
Why are group loans more expensive than individual loans?
As a rule, group loans, significantly more expensive (higher interest rate) than the individual loans. Also, it should be emphasized that due to group lending, in due time, the poorest segments of the population have access to loan. This allowed them to start their business and improve their financial situation.
Are there any setbacks to group lending?
Group lending is not without setbacks. Savita (2007) argues that group lending is associated with additional costs including group formation costs, training borrowers on group procedures, higher degree of supervision and a higher frequency of installment payments.