Graduating from Group Lending to Individual Lending: Gaps and Intervention

Abstract

Microfinance Institutions (MFI’S) have been active players in furthering the cause of Financial Inclusion for the past two decades now. They have been successful in proving that the poor can save money, borrow money and repay the borrowedmoney with certainty as per their repayment schedule, time and again. However, MFI’s have their own constraints when it comes to the amount of maximum loan they can lend to the poor and the interest rates that they have to charge from the needy (owing to high operational costs involved and the risk that they bear). The SAATH Savings and Credit Cooperative Society Ltd. (the case study discussed in this paper) for example, can give a maximum loan of up to INR 300001 to its clients who have been regularly saving with the cooperative. It has been observed that most poor opt for loans for consumption/ productive / asset creation purposes. In every case, the amounts that the MFI’s can offer become much less when related to the cause of borrowing. For such reasons, theMFI’s prefer that their clients not only inculcate a habit of regular savings and repayment of loans, but also “Graduate” from the Group Lending phenomenon (which is the common way of lending with MFI’s) to Individual Lending from mainstream financial institutions ( Public Sector Banks mainly). The access of mainstream finance by poor (with focus on urban poor) is the Gap where Intervention is sought by an enterprise that focuses on providing Financial Literacy on one hand and collaborating with the Public Sector Banks on the other. This paper highlights the need of such an enterprise by analyzing the case of The SAATH Savings and Credit Cooperative Society Ltd., Ahmedabad.