Group lending dynamics and enhancing financial access for the underbanked, lessons for Africa

This chapter explores the dynamics of group lending mechanisms and their role in enhancing financial access for the underbanked, focusing on lessons that can be drawn for Africa. Group lending has emerged as a powerful tool for microfinance for poor populations lacking conventional collateral to secure loans. This chapter examines the core mechanisms underpinning successful group lending, including joint liability, self-selection of group members, frequent loan repayments, progressive lending, and sequential lending. It delves into the distinctive features of the two dominant group lending models, the Grameen Model and the Self-Help Group (SHG) Model, highlighting their reliance on social and partial physical collateral. This chapter provides insights into how these mechanisms can be adapted to the African context to promote financial inclusion and alleviate poverty through a detailed review of these models and their impact on repayment performance.