Microlending Programs

Group Lending

Conventional bank lending to low income individuals without stable incomes or assets to use for collateral are rarely available to the clientele who [Page 862]are the focus of microlending programs. The classical method of overcoming individual credit risk deficiencies in microlending is group lending. In the Grameen Bank approach, five individuals self-organize into a group in which individual loans are staged over time. Repayments are scheduled at frequent intervals and processed in public meetings. Using this methodology has been highly effective, with more than 98 percent of loans being repaid in a timely manner in many countries. Economists note that self-organizing into groups makes use of local knowledge about borrower intent to repay; that modest degrees of joint liability among group members promote peer monitoring that helps prevent default; and that public repayment enhances social cohesion and can lead to effective social sanctions that promote repayment.

A loan officer from the GiveWell visits the nongovernmental organization the Small Enterprise Foundation in Tzaneen, South Africa, in 2010. The financial empowerment of women in poverty is perceived by many microlenders as the best means of achieving the social objectives associated with microfinance.

Gender Diversity

Women are overrepresented among the poorest of the poor in almost every nation, are frequently more focused on within-household financial needs than their male counterparts, and are generally considered to be exceptionally committed to the health and education of their children. The financial empowerment of women in poverty is perceived by many microlenders as the best means of achieving the social objectives associated with microfinance. No organization more strongly demonstrates the focus on gender diversity than the Microcredit Summit Campaign, with the goal of extending credit to 175 million of the world's poorest households by 2015. More than 78 percent of the loans reported through 2011 by the 720 cooperating microfinance institutions were made to women borrowers.

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