Challenges and prospects of group lending in Microfinance service delivery:

Abstract

Globally, microcredit has risen to prominence at a rapid speed after its large-scale success in the 1970s in Bangladesh with Grameen Bank. Its central idea is that traditional banks find the poor too costly to serve due to their lack of steady income and collateral. To address the issue of a lack of collateral to secure loans, some rural banks and microfinance companies have taken to group guarantees as a form of social collateral to provide loans. This study delves into the group lending model of the Bonzali Rural bank in Tamale. It aimed at obtaining data on the forms of social collateral, borrower benefits, challenges and the prospects of the group lending approach in microfinance services delivery. A sample of 201 women was used for the study. Structured Survey questionnaires were the main data collection instrument used. Tables were used in the presentation of data. SPSS has been used in producing the charts and Tables and to carry out a paired sample analysis. Group guarantee was the singular collateral security base upon which women were granted loans. The benefits of group lending to the borrower were found to include; improvements in personal finance, easy access to credit, and so on. The paired sample results indicated a statistically significant impact of loans to the beneficiary women through profit increment. Borrower challenges were found to include; peer pressure, conflict among members, etc. Majority of the women were positive about their future relationship with the bank. Based on the findings of this study, it recommends among others that, the Bank of Ghana should adopt a discriminatory policy rate in order to lessen the cost of borrowing to MFIs that support women groups and entrepreneurs