‘Group lending’ was pioneered by Grameen Bank and its founder Dr Muhammad Yunus (considered the face of modern microfinance) in the 1970’s. Individual loans are disbursed to a group of 5 borrowers, mostly women, who may have different borrowing needs. On a weekly basis, borrowers meet with a representative from the bank and their weekly repayments are collected.
If one or more of the members of the group fail in their repayments, then it will negatively affect the whole group’s ability to request for more loans. Thus, other members of the group ensure that the individuals pay on time. This form of peer pressure or peer support has been successful and results in very low non-performing loans.
microLEAP has digitised certain aspects of the ‘Grameen model of Group Lending’ and have called it Group Financing. Under Group Financing, we may offer microfinancing to businesses that may not have a good credit history (due to usage of cash only) or may have only recently been SSM registered.
- Issuers (Borrowers) will need to be a business / enterprise as under SC Regulations, the platform may not be used for personal financing.
- Issuers will need to group together to form a group of 5 businesses, called an ‘Issuer Group’.
- Issuers will need to know the other members of the Group either as friends or acquaintances. This is crucial for group solidarity and peer pressure to work. microLEAP will check their business address and ensure they are in the same community or town.
- If an Issuer within the Group defaults on their payments, then all the other members will be negatively credit scored and this will effect their ability to raise more funds from microLEAP in the future.