Switching from group lending to individual lending: the experience at China’s largest microfinance institution

We analyze group and individual lending using data from 26,579 loan-specific observations in 2014–2016 for CFPA Microfinance, China’s largest microfinance institution (MFI). We show that MFIs in China have converted a large share of their group liability portfolio into individual liability lending, particularly in southern China. Changes in loan contracts, especially loan size and interest rates, significantly increased repayment risk, whereas long borrowing history improved repayment performance. The higher repayment risk of individual lending was likely compensated by higher interest income. Our research indicates that, under certain circumstances, individual lending can be an important form of loans for MFIs.