Microfinance Beyond Group Lending 2.PDF

Microlending is growing in Eastern Europe, Russia and China as a flexible means to widen access to financial services, both to help alleviate poverty and to encourage private-sector activity. We describe mechanisms that allow these programs to successfully penetrate new segments of credit markets. These features include direct monitoring, regular repayment schedules, and the use of non-refinancing threats. These mechanisms allow the programs to generate high repayment rates from low-income borrowers without requiring collateral -and without using group lending contracts that feature joint liability. We appreciate comments from Jonathan Conning, discussions with Albert Park, Elizabeth Wallace, Michael Taylor, Mark Schreiner, and Craig Churchill, and useful suggestions from two anonymous referees. All views and errors are our own.