Microfinance Types: Group and Individual Lending
Anneke Zwart, Student (University), Netherlands, Moderator
In the article ‘Microfinance as Business’, Roodman and Qureshi (2006) dinstinguish two different types of microfinancing: group lending and individual lending. Besides, within group lending, two subgroups are distinguished:
Source: Roodman, D. and U. Qureshi (2006) “Microfinance as Business” Center for Global Development
- GROUP LENDING:
1.1. Group solidarity lending: In this type of microfinance, borrowers need to form groups that are jointly and severally liable for all outstanding loans. This implies that each individual within the groups can be held liable for others’ loans, each individual can be held responsible for outstanding loans. Usually, the structure of disbursements and repayments is systematized, for example repayments are due on a weekly basis and constant over the period of the loan.
1.2. Village banking: The second form of group lending brings together 15 to 30 indivduals to which the banks provide a single loan. After that, authority is delegated to the groups of individuals for on-lending to individual members, of which the size of the loans can vary among members. However, what is the same, is the interest rate disbursements terms.
- INDIVIDUAL LENDING:
The other form of lending refers to a microcredit methodology of smaller loans provided to individuals. Where group lending relies more on tranditional sources of security (marketable collateral, credit bureaus and so forth), individual lending relies on the loan officer, whose duty is to screen the individual borrower’s assets, operations and performance. This type of lending is quite similar to conventional lending to SMEs.
⇒ Are there any other ways in which we can classify Microfinance into types?