Resilience of the group lending model to a COVID-19 induced shock: evidence from an Indian microfinance fund

Microfinance institutes (MFI) have used the individuality scheme for decades however in order to increase the outreach and to overcome the hurdle of non ability of poor individual to provide collateral security joint liability scheme were introduced. Here in the joint liability model the social cohesion is undertaken as the collateral for the provision of the loans. These loans are provided for a group of members who are jointly responsible in case of default by any single member of group. Default rate is measured in order to understand the performance of the loan portfolio of a MFI or lender. The threat of the non provision of further loans have ensured the group members to enforce all the members to repay the installment and leading to decrease in the default rate. The joint liability has been explained by various authors majorly in three basic models namely adverse selection, peer monitoring and moral hazard. There have been studies to identify various factors for the both the individual liability and the joint liability with respect to default rate. This study is an attempt to survey the literature relevant to the individual and joint liability models and build a theoretical driven model in order to understand the factors which impact both joint liability and individual liability in terms of default rate. Loan size, interest rate and cost of operations have been found to be active factors impacting default rate for both the joint liability and individual liability. The research questions are formed on the basis of comparative study of the factors between the joint liability and individual liability and specific relations between factors of liability schemes.

ABSTRACT: Microfinance Institutions (MFIs) foster financial inclusion by offering small, flexible loans to underserved individuals. Group loans, with joint liability, may reduce costs and augment repayment, enhancing financial performance of MFIs. This study empirically analyzes the impact of group loans on costs, repayment rates, and profitability using data from 118 countries. The study employs an unbalanced panel of 1,655 MFIs from 2003 to 2018, consisting of 6,193 observations collected from the World Bank MIX Market Data. It analyzes the impact of group loans on MFIs' cost efficiency, repayment rate, and financial performance using fixed and random effects panel regressions. The study incorporates various control variables such as firm size, outreach, expense ratio, and regional factors. Group loans include both self-help and solidarity loans, and performance is evaluated through metrics such as cost per loan, portfolio at risk, profit margin, and outreach to women and to the poor. The study finds that a higher proportion of group loans improves repayment, financial performance, and outreach for MFIs. A 10% increase in group loans reduces delinquency rates by 0.20%, increases profit margin by 0.005, and raises the return on assets by 0.001. Group lending also extends depth of outreach and outreach to female borrowers, augmenting the social mission of microfinance. Standard diagnostic tests rule out possible endogeneity in the models. These results are statistically significant and robust to the choice of models, measurement of financial performance, and definition of outreach. Overall, the findings confirm that group loans contribute to better repayment behavior, cost efficiency, and financial inclusion, affirming the study's core hypotheses. The study suggests that increasing the proportion of group lending can enhance MFIs' financial sustainability by improving repayment rates. Governments and development organizations should encourage MFIs to adopt group lending models as a tool for achieving social objectives like gender equity and poverty alleviation. In addition to supporting loans with joint liability and peer monitoring, MFIs and policymakers should implement risk-mitigation strategies like borrower training, progressive loans, and strong monitoring to enhance group lending outcomes.

The relevance of micro-lending in battling poverty and encouraging sustainability of the poor is more vividly seen after the emergence of Bangladesh-based Grameen Bank as a successful microfinance institution in 2006. Creating a sustainable microfinance institution largely depends on the two important factors; cost and risk. This paper examines the common risks and costs associated with micro lending, vis-à-vis the trade-off that results into higher costs the more risks are well managed, and higher risks the more costs are highly reduced. As the popular ‘group lending’ model is patronised by the majority MFIs around the world, this paper has gone beyond to suggest the adoption of a new concept in group lending management; the Transmittal Lending model. This new model is theoretically described to optimise the two conflicting variables of risk and costs, so as to enhance an MFI’s profitability and sustainability, simultaneously. The general methodology applied is a review on relevant literature so as to find previously established research opinions that will support the new group lending model. Nevertheless, this new model needs to be quantitatively tested by researchers in the field to deeply understand the dynamics of its applicability in the industry.

Purpose– The purpose of this paper is to examine the factors affecting the financial sustainability of the Indian Micro Finance Institutions (MFIs) post-Andhra Pradesh (AP) crisisDesign/methodology/approach– Regression analysis is used to test the significance of the independent variables on the variable of interest, i.e. the operational self-sustainability. Three-stage regression analysis, i.e. PartialF-test, residual analysis and Box–Cox-type transformations is applied to see the impact of the variables on financial sustainability of the Indian MFIs. The study is based on the data of the Indian MFIs during three fiscal years from 2010-2011 to 2012-2012 reported in the Microfinance Information Exchange (MIX).Findings– The authors’ results indicate that in 2010-2011, the linear regression model seems to be good fit to the data, whereas in 2011-2012 and 2012-2013, the appropriateness of the linear regression models seems questionable (the error distribution seems to be skewed). It is observed that square root of the dependent variable exhibits adequate fit for 2011 and 2012. Therefore, a substantial change in the model for estimating sustainability of Indian MFIs is observed in the post-AP crisis era. It is observed that portfolio quality and capital management are important determinants for the financial sustainability of the MFIs.Practical implications– This study identifies the factors affecting the sustainability of the Indian MFIs, especially after the reforms following the AP crisis in India. The study suggests that from 2012-2013, the factors such as write-off ratio, capital-to-asset ratio, ratio of financial revenue to assets and provision for loan impairment-to-asset ratio are the main factors which have significant impact on the operational self-sufficiency (OSS) of Indian MFIs. This indicates that the quality of portfolio must be improved to reduce the vulnerability of the Indian MFIs.Social implications– After the AP crisis, the performance of Indian MFIs is stabilized to a greater extent. The various performance indicators are improving.Originality/value– The paper provides a detailed comparative analysis of the factors effecting financial sustainability of the Indian MFIs, before and after the regulatory reforms in 2011. A substantial change is observed after 2011-2012. Such a study on the Indian microfinance sector seems to be new (to the best of the authors’ knowledge).

Purpose With the ongoing transformation of the microfinance sector, questions have been raised on the ability of microfinance institutions (MFIs) to perform financially well without compromising with their social objectives. The current study attempts to analyse the social and financial performance of Indian MFIs with an objective to find the kind of relationship between these two objectives. Design/methodology/approach The dynamic framework of simultaneous equations model is used to find the nature of the relationship which exists between social and financial performance of Indian MFIs. Findings The study finds that depth of outreach enables MFIs to achieve financial sustainability. On the other hand, financially strong MFI lend more as reflected by an increase in their average loan size. Research limitations/implications Many MFIs still receive subsidies to support their operations. Ideally, adjustments should be made to remove the effect of such subsidies on their cost. However, due to non-availability of data, the study fails to make any adjustment for the subsidies. Practical implications The presence of a complementary relationship between social and financial performance in the Indian microfinance sector is quite encouraging for the policymakers during the current time when the sector is becoming less dependent on subsidies. However, the recent upsurge in the average loan size requires attention. Social implications The findings suggest that MFIs can achieve financial sustainability while targeting poor clients. This indicates that MFIs can perform socially good along with their financial performance. Originality/value Such study is vital when the Indian microfinance sector is moving away from subsidies to become self-reliant and commercialised. Few studies have focused on this aspect of Indian microfinance sector.

The lack of capital access from poor society to Indonesia banking is greater. These all are caused by poor society don�t have enough collateral which is requested by bank officer to get loan. Non-bank financial institution is one of micro-financial institution which has covered all of poor society and also maximizing the existency of UMKM, include social model credit capital (GLM). The aim of this study to see the form of Group Lending Model (GLM) and its� impact to their members social structure. This research also tries to give the� solutions such as the first GLM development strategy in other to be more effective and efficient. The methods used are Structural Equation Modeling (SEM) and Interpretaive Structural Modeling (ISM). Based on the measurement of some indicators there are the participation indext of society, society development, good repayment rate, good cross reporting, and penalty implications appropriate with the regulations. The results show that GLM programme, the society feel the� differenciation from the economic and social condition between before and after following this programme. This is valuable invention for economic studies. GLM development strategy are devided into 7 levels with its important elements are : the needy of similiarity fund access for all of financial institution. The needy of human resource quality development as the pioneer of group lending model, and the importance of inclusive financial to all financial system.

Executive Summary The Indian microfinance sector has experienced fundamental changes in the structure of ownership and management of microfinance institutions (MFIs). The current study seeks to evaluate the competition level of the Indian microfinance sector during the period 2005–2017 and attempts to find the cause-and-effect relationship between concentration and competition. Furthermore, it analyzes the performance of leading MFIs to explore if there is evidence of exploitation of clients by these institutions. The study is the first of its kind with explicit focus on the market structure of the Indian microfinance market. The study uses unbalanced panel data sets generated from the microfinance information exchange (MIX) data source. The representative sample includes firm specific data of 127 MFIs of different legal statuses and sizes. The dynamic equation model is estimated applying the difference generalized methods of moments (GMM). The results of the empirical investigation find a rise in the concentration with a decrease in competition in the Indian microfinance market during recent years. Intense competition in the past and introduction of new regulations in the wake of sectoral crisis are responsible for this transition. High concentration gives large MFI market powers to exploit the customers. However, the study fails to find any evidence of any such exploitation from the conduct of the leading MFIs. The survey highlights the potential connection between the drop in the competitiveness of the sector and the first appearance of new regulations in light of the sectoral crisis. It is imperative that regulators keep a tight vigil on the operations of leading MFIs and take necessary actions to ensure a healthy competitive environment in the sector. Furthermore, existing rules should be modified to help small MFIs as they play a very crucial role in the fulfilment of the primary objective of the microfinance.

Increased competition coupled with commercialisation in the Indian microfinance sector has brought about many major transformations. From an impact-driven development programme, microfinance institutions (MFIs) today emerged as commercially oriented profit-making entities. In addition to bringing their commercial and social objectives into balance, MFIs today are striving for efficient level of operation. Efficiency in the level of operation of MFIs allows them to remain competitive and attain financial sustainability. However, it is also imperative for MFIs to remain socially committed towards the ultimate mission of reaching the poorest at the bottom of the pyramid. Hence, it is of research interest to see the trade-off between MFIs’ social objective of spreading outreach and at the same time remaining financially sustainable. Against this backdrop, this article is devoted to study the potential impact of competition and commercialisation on efficiency of MFIs in India and Bangladesh. The study is carried over 75 MFIs altogether over the period of 8 years from 2009 to 2016. The data have been collected from microfinance information exchange database. Efficiency is measured through technical efficiency (TE) scores as estimated under data envelopment analysis. In order to establish the association between competitions, which is estimated by the Herfindahl–Hirschman index (HHI), tobit regression is used. The study evidenced increasing level of competition in the sector over the years, but it is more pronounced in India as against Bangladesh. In order to analyse the trade-off, TE scores are separately estimated under both financial and social measures. TE score is found to be higher in case of social measures of efficiency as against financial efficiency. Further, under both the measures, competition is found to be having a significant impact on both financial and social efficiency.

Microfinance institutions (MFIs) are exposed to a great number of risks such as institutional risks, operational risks, financial management risks, and external risks that threaten effective services to clients, financial stability, and future sustainability. In this background, the objectives of the chapter are (1) to understand the concept risk and risk management of MFIs and (2) to examine the risk management practices of select MFIs in West Bengal. Based on the objectives, a structured questionnaire has been prepared to examine risk management practices of MFIs and problems associated with implementing risk management tools and techniques. The study found that most of the MFIs have not adopted risk management tools and techniques so far in their institutions to minimize risks. The study also found that the small MFIs are lacking qualified and professional persons in management and hence facing more strategic and governance risks.

ObjectivesThe aims of our study were to describe the effect of the COVID-19 pandemic and lockdown on primary care in Germany regarding the number of consultations, the prevalence of specific reasons for consultation presented by the patients, and the frequency of specific services performed by the GP.MethodsWe conducted a longitudinal observational study based on standardised GP interviews in a quota sampling design comparing the time before the COVID-19 pandemic (12 June 2015 to 27 April 2017) with the time during lockdown (21 April to 14 July 2020). The sample included GPs in urban and rural areas 120 km around Hamburg, Germany, and was stratified by region type and administrative districts. Differences in the consultation numbers were analysed by multivariate linear regressions in mixed models adjusted for random effects on the levels of the administrative districts and GP practices.ResultsOne hundred ten GPs participated in the follow-up, corresponding to 52.1% of the baseline. Primary care practices in 32 of the 37 selected administrative districts (86.5%) could be represented in both assessments. At baseline, GPs reported 199.6 ± 96.9 consultations per week, which was significantly reduced during COVID-19 lockdown by 49.0% to 101.8 ± 67.6 consultations per week (p < 0.001). During lockdown, the frequency of five reasons for consultation (-43.0% to -31.5%) and eleven services (-56.6% to -33.5%) had significantly decreased. The multilevel, multivariable analyses showed an average reduction of 94.6 consultations per week (p < 0.001).ConclusionsWe observed a dramatic reduction of the number of consultations in primary care. This effect was independent of age, sex and specialty of the GP and independent of the practice location in urban or rural areas. Consultations for complaints like low back pain, gastrointestinal complaints, vertigo or fatigue and services like house calls/calls at nursing homes, wound treatments, pain therapy or screening examinations for the early detection of chronic diseases were particularly affected.

The study aimed at investigating group loan default at Agricultural Finance Corporation (AFC), a state owned Development Finance Institution in Kenya formed in 1963, whose main role is to assist in the development of agriculture and agricultural industries by making loans to individual farmers, groups, private companies, public bodies, local authorities and other persons engaging in agricultural activities. AFC began lending to groups in 2006 with its Eldoret Branch of Uasin Gishu County being its pioneer branch. The performance of the group loans was good with a default rate of 0.5%. However, in the succeeding years the performance of the group loans in the Eldoret branch became very erratic recording a high of 80% default rate in 2008. The findings of the study done in 2013 suggest that amount of loan has no effect on default; size of the group has a significant positive effect on group loan default, while age of the group, experience in borrowing and education level all produced significant negative effect on group loan default. The findings of the study are useful in designing of credit scoring systems by AFC and other lending institutions following the group lending model

This thesis concentrates on group lending, which is considered a major force behind the successful operation of microcredit institutions. This research explores group-lending mechanisms and group-formation techniques which improve repayment performance and reduce group failures. Group-lending microcredit institutions lend to low-income groups who cannot offer collateral. By making a group of borrowers jointly responsible for loan repayments, the idea of social collateral has gained credence. The Grameen Model uses this as a substitute for physical collateral. An alternative group-lending model, Self-Help Group (SHG) requires members to save first to meet a certain threshold level of savings. This process helps to develop and strengthen bonds among members of the group while pooling their savings. These savings serve as partial physical collateral and provide an incentive to repay loans. In the first of the three long essays that form the body of this research, the distinctive features of both the Grameen Model and the SHG Model are compared through laboratory experiments to identify the mechanisms that can improve repayment performance. The results indicate that the joint impact of both social and partial physical collateral is of far more benefit than the individual impact of either. Using an experimental approach, the second essay explores the impact of social ties on group solidarity. Group solidarity is expressed in terms of meeting the threshold level of group contribution. The results indicate that social proximity among members enhances group contribution and, thus, may help in the voluntary provision of the public good. In the context of Self-Help Group lending, members need to save first and then seek access to loans from banks against these savings. We find that social ties make it easier for the group to reach the threshold level of savings and thus procure partial physical collateral, which in turn increases repayment performance. This result may have ramifications for group-lending institutions as well as for the provision of a public good that relies on group contributions. The existing literature shows that joint liability and self -selection of group members results in homogeneous group formation in terms of the risk characteristics of the borrower's project. In the third essay we develop a theoretical model to demonstrate the feasibility of heterogeneous group formation. We consider the impact of different forms of intra-group transfers on group formation and find that only a particular form of intra-group transfer, referred to as indirect joint liability and revenue sharing (IJLRS), results in heterogeneous group formation. This may serve as an informal intra-group insurance mechanism. Overall, this thesis increases our understanding of the group-lending strategies of microfinance institutions. The results obtained in this thesis can be used by policy makers and microfinance institutions. The ultimate aim is for microfinance institutions to be able to increase their outreach, in order to help more people get out of poverty.

MicroFinance Institution (MFI) officers screen loans for a prosocial crowdfunding campaign in developing economies. However, loan officers’ screening decision is influenced by loan officers’ default rate, hence the loan officers are likely to focus on the better borrowers. However, crowdfunding emerged to provide finance to entrepreneurs who are less likely to meet the loan screening requirements. Thus, this study examined the interaction effect between loan officers’ characteristics and loan defaults on crowdfunding approval. We usedordered logistic regression to primary data collected from loan officers in microfinance institutions that are registered by the largest prosocial crowdfunding platform Kiva asfield partners. The study found a significant interaction effect of loan officers’ default rate and gender, experience and crowdfunding awareness. Thus, the results implied that, the demographic characteristics of the loan officers are interacted by the loan officers’ default rate when deciding to approve a loan for a crowdfunding campaign. Therefore, the findings recommended imparting loan officers with techniques that will help them keep a low default rate and those loan officers with a low default rate should work on crowdfunding approval

MicroFinance Institution (MFI) officers screen loans for a prosocial crowdfunding campaign in developing economies. However, loan officers’ screening decision is influenced by loan officers’ default rate, hence the loan officers are likely to focus on the better borrowers. However, crowdfunding emerged to provide finance to entrepreneurs who are less likely to meet the loan screening requirements. Thus, this study examined the interaction effect between loan officers’ characteristics and loan defaults on crowdfunding approval. We usedordered logistic regression to primary data collected from loan officers in microfinance institutions that are registered by the largest prosocial crowdfunding platform Kiva asfield partners. The study found a significant interaction effect of loan officers’ default rate and gender, experience and crowdfunding awareness. Thus, the results implied that, the demographic characteristics of the loan officers are interacted by the loan officers’ default rate when deciding to approve a loan for a crowdfunding campaign. Therefore, the findings recommended imparting loan officers with techniques that will help them keep a low default rate and those loan officers with a low default rate should work on crowdfunding approval

In recent years microfinance institutions (MFIs) have been duly recognised as an important component of financial system as MFIs can facilitate the agenda of financial inclusion. MFIs provide unbanked and poor appropriately designed financial products and services. MFIs have addressed the issues concerning supply-side barriers 1 to financial inclusion by enhancing its outreach across the countries/regions. However, outreach performance of MFIs is affected by factors concerning MFIs such as age, size, profitability, efficiency, productivity and portfolio quality, which affect outreach (breadth/depth) of MFIs. The present study has attempted to study the factors affecting outreach performance of MFIs in India. The study using unbalanced panel data for 39 Indian MFIs concludes that age, assets and productivity indicators have affirmative association with outreach performance of MFIs in India.