Many successful micro-finance programs treasure Quality Group Formation.
Group Formations are not there by accidents but they are innate in the systems. Though the trend is gearing towards individual lending approach, groups are still vital in microfinance. I may quote from my notes during one of my trainings about microfinance some few years back (this is still true up to this time, believe me):
A group is a collection of individuals who come together to gain access to credit. Groups are the building blocks of the Grameen Bank Approach. In order to build a GB style program that has strict credit discipline, its building blocks or GROUPS must be strong.
Yes, it is true. It is very easy to quote some ideas from old notes for a post or two. But, I am not sharing you this without a purpose or if I see that this will not help you in the long run while you are doing microfinance as a business. (inside link)
Just take the jest of the above quote. These are people who have common interest, i.e, to gain access to credit. These are people who, perhaps, have common situation, i.e., poor entrepreneurs who want to improve their living condition.
And, if you’ve been with me for some posts, you have probably read my article on Market Segmentation for Microfinance. You want to focus to manageable segment of your market, aren’t you?
If you are still on the process of decision-making, I will tell you bluntly: Focus on few things that you do best. (inside link)
I will continue to draw down from my notes, if you care.
What is a Strong Group?
A Strong Group is a collection of individuals who accept that it is in their self interest to ensure that all members of the group fulfill their obligations.
See. Their acceptance to ensure that all members will fulfill their obligations is the beginning of the group’s credit discipline. But, acceptance is not enough. The group must show the credit discipline over a period of time. In short, give them the chance to prove their creditworthiness. If you want to extend loan, then you have to take the risk.
With your quality group formation system, however, the credit risk is limited. When predefined set of rules and procedures were followed by the members of the group for a period of time, you can say that you have formed a good group.
Importance of Group
- Group Pressure – within a good group, members are pressured to adhere to the rules and procedures. Member who will then break the rules, may be outcast from the group. With group pressure, payment can be 95%.
- Group as Collateral – hence, members have common aspiration, i.e., to gain credit access, group’s members are ready to lend a hand to some members who can not meet their obligations for some limited time. The group will ensure at least good payment attitude and adhere to the established credit discipline, otherwise, their access to credit is affected.
- Additional Motivation – Membership motivation can be one of the difficult works of any Account Officers. Lack of motivation among members can lead to delinquency. Here, the group can help you enhance activities on membership motivation.
- Easier to Collect – it is easier to meet members while they are grouped. It is easier also to collect from them. Whether you are doing group lending approach or individual lending approach, formation of groups can lessen your operating expenses by five-fold.
Group can operate as a simple, smaller village. You can take care of your village if you divide them into groups.