|Financial Systems for Rural Development (GRET)|
|Part three: Synthesis of thematic debates|
Generally speaking, there are two cases with respect to guarantees: either the borrower puts forward collateral, or he cannot.
For small loans designed for people who do not have collateral, the NGOs, projects and banks request, or even oblige, the borrowers to form small groups. But what is the real role of these groups?
The collective security system invented by the Grameen Bank relies on a moral guarantee between 5 people who mutually guarantee the repayment of each group member. In theory, this practice is also used when the borrower can put forward a guarantee. The advantage of this system is that it creates the conditions of solidarity that binds the beneficiaries together. On a wider scale, the group also becomes a place for training, exchanges of experience, and discussion.
Normally, in the case of non-repayment by one person, the whole group is excluded. In practice, such sanctions are rarely enforced. In Cambodia and Vietnam, the groups often unite members of an extended family.
Should the groups be limited to five people?
More important than the number of people, it is the trust that exists between the members of the group that is important. The people must know each other, be aware of their responsibility, be fully aware of the financial commitment that they are taking, assume the role of mutual counsel. This enables them to exclude people who might not be able to take on this responsibility. Over five people, the bonds of solidarity are not as strong and the involvement of each individual member tends to lessen.
How should the groups be formed?
If it is the village chief who appoints the members of the group, it is normal for them not to feel united. It is preferable to let the groups form spontaneously by affinity. This may cause some to be excluded but all communities exclude on their own people who cannot be trusted. Exclusion causes problems when it involves people who have economic potential and ideas, but experience shows that this is rarely the case.
Should all the people in a group have the same profession anger the same economic situations?
A variety of economic situations within one group may enable the poorer members to have access to loans through the guarantee offered by the more well-to-do. Moreover, if some of the members have an activity with steady income throughout the year, they represent a guarantee in relation to those whose incomes are periodical (as with farming). In this case, complementarity should be encouraged. However, some think that preference should be given to the formation of groups with the same economic situation since when confronted with the same difficulties/ they tend to understand each other better and be more united.
Must the only family of the group having taken out a loan totally repay it before credit can be granted to another member of the group?
This is a cause of discontent in the groups. As soon as possible, more flexibility needs to be introduced into the granting of the loans.
As far as the repayment rate is concerned, it has been noted that it is often far better in groups "whether in the rural world or for micro-businesses). The formula works better for small loans than for big ones. The example of Banrural in Mexico demonstrates that the principle of collateral can pose problems.