Institute for Social and Economic Change

Established in 1972 by Professor V K R V Rao, ISEC is an All-India Institute for Interdisciplinary Research and Training in the Social Sciences

Progressive Lending as a Dynamic Incentive Mechanism in Microfinance Group Lending Programmes: Empirical Evidence from India – isec

Progressive Lending as a Dynamic Incentive Mechanism in Microfinance Group Lending Programmes: Empirical Evidence from India

Abstract

Microfinance through joint liability or group lending has received a lot of attention recently from policy makers as well as academicians. It is playing important role in delivering financial services to the ‘socially and economically excluded’ poor, in general, and women, in particular. Group- lending works with various dynamic incentives. One such is the principle of progressive lending which plays vital role in sustaining the groups in the delivery of microfinance services to its members. In progressive lending, a typical borrower receives very small loan amounts initially, which increase with a good repayment record or is linked to new larger loans. This paper explores the possible theoretical and empirical relationship between progressive lending and its determinants in the joint liability lending approach. The primary survey was conducted in 10 villages covering 106 SHGs and 318 members in Karnataka, India. The results indicate that age, size, savings and repayment record of the group significantly influence progressive lending.

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