Group Loan

A group loan is a type of loan where a group of individuals collectively apply for and receive credit, often with the understanding that each member is jointly responsible for repayment. This means that if one member defaults on their loan, the other members may be required to cover the outstanding amount. Group loans are frequently used in microfinance, particularly to empower women and support income-generating activities for those who may not have access to traditional banking services.

Key characteristics of group loans:

• Joint liability: Members are collectively responsible for loan repayment.
• Peer pressure: The group dynamic can encourage timely repayment due to social pressure among members.
• Microfinance focus: Often used to provide financial access to underserved populations, especially for income-generating activities.
• Examples: Self-Help Groups (SHGs) and Joint Liability Groups (JLGs) are common structures for group lending.
• Potential for empowerment: Group loans can facilitate women's empowerment by providing access to capital for business ventures.
• Risks: Challenges can arise if members struggle with repayment or if there are issues with group dynamics.